As filed with the Securities and Exchange Commission on March 22, 2000
File No. 70-9571
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM U-1
APPLICATION / DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Wisconsin Energy Corporation
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(Names of company filing this statement and
addresses of principal executives offices)
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None
(Name of top registered holding company parent)
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Paul Donovan
Senior Vice President and Chief Financial Officer
Wisconsin Energy Corporation
231 West Michigan Street
Milwaukee, WI 53203
(Name and address of agent for service)
The Commission is requested to send copies of all notices,
orders and communications in connection with this matter to:
Clifford M. Naeve, Esq. Walter T. Woelfle
Judith A. Center, Esq. Law Director - Regulatory
William C. Weeden Wisconsin Electric Power Company
Skadden, Arps, Slate, Meagher & Flom LLP 231 West Michigan Street
1440 New York Avenue, N.W. Milwaukee, WI 53203
Washington, D.C. 20005
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TABLE OF CONTENTS
Page
ITEM I: DESCRIPTION OF PROPOSED TRANSACTION............................... 1
A. Introduction and Request for Commission Action.................... 1
B. Description of the Parties to the Transaction..................... 2
1. General Description.......................................... 2
a. WEC..................................................... 2
b. WICOR................................................... 4
c. CEW Acquisition......................................... 4
2. Description of Facilities.................................... 5
a. WEC..................................................... 5
i. General............................................ 5
ii. Electric Generating Facilities and Resources....... 5
iii. Electric Transmission and Distribution
Facilities......................................... 6
iv. Gas Facilities..................................... 7
v. Other WEC Businesses............................... 7
b. WICOR................................................... 9
i. General............................................ 9
ii. Gas Facilities..................................... 9
iii. Other WICOR Businesses............................. 10
C. Description of Transaction........................................ 11
1. Background................................................... 11
2. Merger Agreement............................................. 13
3. Management and Operations Following
the Transaction.............................................. 14
ITEM II: FEES, COMMISSIONS AND EXPENSES.................................... 14
ITEM III: APPLICABLE STATUTORY PROVISIONS................................... 15
A. Section 10 Standards.............................................. 15
1. Section 10(b)................................................ 15
a. Section 10(b)(1)........................................ 16
i. Interlocking Relationships......................... 16
ii. Concentration of Control........................... 17
b. Section 10(b)(2)........................................ 19
i. Fairness of Consideration.......................... 19
ii. Reasonableness of Fees............................. 20
c. Section 10(b)(3)........................................ 21
i. Capital Structure.................................. 21
ii. Public Interest, Interest of Investors and
Consumers and Proper Functioning of Holding
Company System..................................... 23
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2. Section 10(c)................................................ 23
a. Section 10(c)(1)........................................ 23
b. Section 10(c)(2)........................................ 24
i. Integrated Electric Utility System................. 24
ii. Integrated Gas Utility System...................... 25
(A) Single Area or Region......................... 25
(B) Coordinated Operations........................ 28
(C) Economies and Efficiencies.................... 28
(D) Absence of Impairment......................... 28
iii. De Facto Integration............................... 28
3. Section 10(f)................................................ 29
B. Section 3(a)(1)................................................... 29
ITEM IV: REGULATORY APPROVALS.............................................. 30
ITEM V: PROCEDURE......................................................... 30
ITEM VI: EXHIBITS AND FINANCIAL STATEMENTS................................. 30
A. Exhibits.......................................................... 30
B. Financial Statements.............................................. 32
ITEM VII: INFORMATION AS TO ENVIRONMENTAL EFFECTS........................... 33
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Wisconsin Energy Corporation, a Wisconsin corporation and an exempt
holding company pursuant to Section 3(a)(1) of the Act, hereby amends and
restates its Application/Declaration on Form U-1 in File No. 70-9571 as follows:
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ITEM I: DESCRIPTION OF PROPOSED TRANSACTION
A. Introduction and Request for Commission Action
Pursuant to Sections 9(a)(2) and 10 of the Public Utility Holding
Company Act of 1935, as amended (the "Act"), Wisconsin Energy Corporation
("WEC"), a Wisconsin corporation and an exempt holding company pursuant to
Section 3(a)(1) of the Act, hereby requests that the Securities and Exchange
Commission (the "Commission") authorize WEC's acquisition of all of the issued
and outstanding stock of WICOR, Inc. ("WICOR"), also a Wisconsin corporation and
an exempt holding company pursuant to Section 3(a)(1) of the Act (the
"Transaction"). WEC also requests an order from the Commission that, following
the consummation of the Transaction, WEC will be exempt from all provisions of
the Act, other than Section 9(a)(2), pursuant to Section 3(a)(1) of the Act.
The Transaction will result in a combined company that serves
approximately 921,000 gas customers and more than one million electric customers
in Wisconsin and in Michigan's Upper Peninsula, and operates more than 16,500
miles of gas main and 30,000 miles of electrical transmission and distribution
wires. The combined company will have approximately 9,000 employees.
Shareholders, customers and the public will benefit from the
Transaction. The Transaction will create a financially strong company that will
be well-positioned in the energy marketplace. Enhanced purchasing power and
coordinated gas portfolio management are projected to reduce the cost of
purchased gas. Most of the purchase gas savings will be passed through to
customers under the purchased gas adjustment mechanisms of WEC's subsidiary,
Wisconsin Electric Power Company ("WEPCO") and WICOR's subsidiary, Wisconsin Gas
Company ("Wisconsin Gas"). Additionally, gas utility operations will be improved
by the coordinated use of the resources and skill sets of the two companies and
adoption of best practices.
The Transaction will be consummated in accordance with the terms of an
Agreement and Plan of Merger (the "Merger Agreement"), dated at June 27, 1999,
as amended at September 9, 1999, by and between WEC, WICOR and CEW Acquisition,
Inc. ("CEW Acquisition"), a Wisconsin corporation and wholly-owned subsidiary of
WEC formed for the purpose of facilitating the Transaction. A copy of the Merger
Agreement is attached as Exhibit B-1. The Transaction was approved by both the
Board of Directors of WEC and the Board of Directors of WICOR on June 27, 1999.
Consummation of the Transaction is subject to approval by the
shareholders of WEC and WICOR. Such approval was received at shareholder
meetings held on October 27, 1999. The Transaction also is conditioned upon
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approval by the Commission under the Act, approval by the Public Service
Commission of Wisconsin ("Wisconsin Commission"), and expiration or termination
of the waiting period applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The HSR Act
waiting period terminated in early March 2000, and the Wisconsin Commission
approved the Transaction on March 14, 2000, the order for which is attached at
Exhibit D-2.
B. Description of the Parties to the Transaction
1. General Description
a. WEC
WEC is a public utility holding company incorporated under the laws of
the State of Wisconsin and is exempt from regulation by the Commission under the
Act (except for Section 9(a)(2) thereof) pursuant to Section 3(a)(1) of the Act
by order of the Commission. Wisconsin Energy Corporation, Holding Company Act
Release No. 26877 (May 21, 1998) ("WEC"). WEC's principal executive office is
located at 231 West Michigan Street, Milwaukee, Wisconsin 53203. Copies of WEC's
Restated Articles of Incorporation and By-Laws are incorporated by reference as
Exhibits A-1 and A-2.
WEC owns all of the common stock of two public utility companies:
WEPCO, a combination electric and gas utility company, and Edison Sault Electric
Company ("Edison Sault"), an electric utility company. A copy of WEC's corporate
organization chart is attached as Exhibit E-8. At December 31, 1999, WEC had
5,877 employees, of which 5,563 were utility employees. WEPCO and Edison Sault
are subject to regulation by (i) the Federal Energy Regulatory Commission (the
"FERC") under the Federal Power Act (the "FPA") with respect to wholesale sales
and transmission of electric power and gas, construction and operation of
hydroelectric projects, gas marketing, and accounting and other matters, (ii)
the Wisconsin Commission and the Michigan Public Service Commission (the
"Michigan Commission"), and (iii) the Nuclear Regulatory Commission (the "NRC"),
with respect to the activities of the nuclear facility in which WEC, indirectly
through its subsidiary WEPCO, has an ownership interest.
At the end of 1999, WEC had total assets of $6.2 billion. During 1999,
WEC had total operating revenues of $2.3 billion and net income of $209 million.
At the end of 1999, WEPCO had total assets of $5.1 billion. During 1999, WEPCO
had total operating revenues of $2.0 billion, of which $1.7 billion consisted of
electric operating revenues, $307 million consisted of gas operating revenues,
and $21 million consisted of steam operating revenues. During 1999, WEPCO's net
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income was $212 million after dividends on preferred stock. The WEC Common Stock
is listed on the New York Stock Exchange. At December 31, 1999, there were
118,904,210 shares of WEC Common Stock outstanding.
WEPCO was incorporated in Wisconsin in 1896. Copies of WEPCO's
Restated Articles of Incorporation and By-Laws are incorporated by reference as
Exhibits A-3 and A-4. WEPCO is authorized to provide retail electric service in
designated territories in Wisconsin, and in certain territories in Michigan.
WEPCO also sells wholesale electric power. WEPCO is subject to the regulation of
the FERC, the NRC, the Wisconsin Commission, and the Michigan Commission. At
year-end 1999, WEPCO had 5,490 employees.
WEPCO generates, transmits, distributes, and sells electric energy in
a territory of approximately 12,000 square miles, with a population estimated at
2,300,000 in southeastern (including the metropolitan Milwaukee area), east
central and northern Wisconsin and in the Upper Peninsula of Michigan. A map of
WEPCO's electric service area is attached as Exhibit E-1. At December 31, 1999,
WEPCO had approximately one million electric customers. WEPCO's existing FERC
tariffs also provide for transmission service to its wholesale customers. A map
of WEPCO's transmission system is attached as Exhibit E-2. During 1999, WEPCO
had 19 customers taking transmission service. As mentioned, WEPCO had electric
operating revenues of $1.7 billion during 1999.
WEPCO purchases, distributes, and sells natural gas to retail
customers and transports customer-owned gas in four distinct service areas of
about 3,800 square miles in Wisconsin: west and south of the City of Milwaukee,
the Appleton area, the Prairie du Chien area, and areas within Iron and Vilas
Counties. A map of WEPCO's gas service area is attached as Exhibit E-3. The gas
service territory has an estimated population of approximately 1,200,000. As
mentioned, WEPCO had gas operating revenues of $307 million during 1999.
Effective May 31, 1998, WEC acquired ESELCO, Inc. ("ESELCO"), a
holding company whose principal subsidiary was Edison Sault. ESELCO was merged
with and into WEC, with WEC the surviving company. See WEC, supra. Thus, Edison
Sault is a wholly-owned direct subsidiary of WEC. Edison Sault is authorized to
provide retail electric service in certain territories in Michigan. Edison Sault
generates, transmits, distributes, and sells electric energy in a territory of
approximately 2,000 square miles with a population of approximately 55,000 in
the eastern Upper Peninsula of Michigan. A map of Edison Sault's electric
service area is attached as Exhibit E-4. A map of Edison Sault's transmission
system is attached as Exhibit E-5. At December 31, 1999, Edison Sault had
approximately 21,800 electric customers and 73 employees. Edison Sault also
provides wholesale electric service under contract with one rural cooperative.
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Edison Sault is subject to the regulation of the FERC and the Michigan
Commission. At December 31, 1999, Edison Sault had total assets of $75 million.
During 1999, Edison Sault had electric operating revenues of $38 million and net
income of $4 million.
b. WICOR
WICOR is a public utility holding company incorporated under the laws
of the State of Wisconsin, which is exempt from regulation under the Act (except
for Section 9(a)(2) thereof) pursuant to Section 3(a)(1) of the Act under Rule
2. On an unaudited, pro forma basis consolidated basis at the end of 1999, WICOR
had total assets of $1.1 billion. During 1999, WICOR had total operating
revenues of $1.0 billion and net income of $53.8 million. The WICOR Common Stock
is listed on the New York Stock Exchange. At December 31, 1999, there were
37,819,408 shares of WICOR Common Stock outstanding. A copy of WICOR's Restated
Articles of Incorporation is incorporated by reference as Exhibit A-5 and a copy
of WICOR's By-Laws is attached as Exhibit A-6. WICOR's principal executive
office is located at 626 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
WICOR has one wholly-owned public utility subsidiary: Wisconsin Gas, a
gas utility company which is organized under the laws of the State of Wisconsin.
A copy of WICOR's corporate organization chart is attached as Exhibit E-9. At
December 31, 1999, WICOR had 3,972 employees.
At December 31, 1999, Wisconsin Gas distributed gas to approximately
538,000 residential, commercial, and industrial customers in 529 communities
throughout Wisconsin. Wisconsin Gas' service area has a population of
approximately two million. A map of Wisconsin Gas' gas service area is attached
as Exhibit E-6. At the end of 1999, Wisconsin Gas had total assets of $674
million. During 1999, Wisconsin Gas had total operating revenues of $440 million
and net income of $26 million. A copy of Wisconsin Gas' Restated Articles of
Incorporation is incorporated by reference as Exhibit A-7 and a copy of
Wisconsin Gas' By-Laws is attached as Exhibit A-8.
c. CEW Acquisition
CEW Acquisition is a direct, wholly-owned subsidiary of WEC,
incorporated under the laws of the State of Wisconsin solely for the purpose of
facilitating the Transaction by merging with WICOR. CEW Acquisition does not
have, and prior to the closing of the Transaction will not have, any operations
other than the activities contemplated by the Merger Agreement necessary to
accomplish the merger of CEW Acquisition and WICOR as described herein. The
principal executive office of CEW Acquisition is located at 231 West Michigan
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Street, Milwaukee, Wisconsin 53203. Copies of CEW Acquisition's Articles of
Incorporation and By-Laws are incorporated by reference as Exhibits A-9 and
A-10.
2. Description of Facilities
a. WEC
i. General
During 1999, WEPCO and Edison Sault sold approximately 313 billion
kilowatt-hours ("kWh") of electric energy (at retail and wholesale). WEPCO sold
approximately 30.6 billion kWh of electric energy (at retail and wholesale).
WEPCO's net generation totaled 29.1 billion kWh during 1999, with the remaining
sales supplemented by power purchases. For the year ended December 31, 1999,
approximately 64 percent of the electric supply of WEPCO was obtained from coal-
fired generation, approximately 22 percent from nuclear generation, and
approximately 14 percent from other generation and purchased power. During 1999,
Edison Sault sold approximately 61.9 million kWh of electric energy (at retail
and wholesale). In 1999, Edison Sault generated 24 percent of its total electric
energy requirements and purchased the remaining 76 percent of such requirements.
Total gas therms delivered by WEPCO, including customer-owned
transported gas, were approximately 944 million therms in 1999. At December 31,
1999, WEPCO transported gas for approximately 370 customers who purchased
natural gas directly from other suppliers. Transported gas accounted for
approximately 43 percent of the total therms delivered by WEPCO during 1999.
There were approximately 398,500 natural gas customers at December 31, 1999.
WEPCO's maximum daily send-out during 1999 was 692,649 dekatherms on January 4,
1999. WEPCO's gas operations deliver natural gas to WEPCO's Concord, Paris, and
Oak Creek power plants. Deliveries to these facilities are at rates approved by
the Wisconsin Commission.
ii. Electric Generating Facilities and Resources
At December 31, 1999, WEPCO had a total dependable net generating
capability of 5,789 MW from the following units:
o Point Beach: two nuclear electric generating units with a combined net
capability of 1,022 MW.
o Oak Creek: four coal-fired electric generating units with a combined
net capability of 1,139 MW.
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o Presque Isle: nine coal-fired electric generating units with a
combined net capability of 617 MW.
o Pleasant Prairie: two coal-fired electric generating units with a
combined net capability of 1,210 MW.
o Port Washington: four coal-fired electric generating units with a
combined net capability of 320 MW.
o Valley: two coal-fired electric generating units with a combined net
capability of 227 MW.
o Edgewater: a 25 percent undivided interest (equivalent to a net
capability of 102 MW) in one coal-fired unit, operated by a
nonaffiliated utility.
o Concord: four gas/oil fired combustion turbine generating units with a
combined net capability of 376 MW.
o Paris: four gas/oil fired combustion turbine generating units with a
combined net capability of 376 MW.
o Milwaukee County: three coal-fired electric generating units with a
combined net capability of 11 MW.
o Germantown: four oil-fired combustion turbine generating units with a
combined net capability of 252 MW.
o WEPCO also owns 15 hydro-plants with an aggregate net capability of 67
MW. (WEPCO is in the process of selling to an independent party one
plant with an installed generating capacity of approximately 1 MW.) In
addition, WEPCO owns six smaller combustion turbines and diesel units
with a combined net capability of 70 MW.
Edison Sault's major source of electric energy is its 29.8 MW
hydroelectric generating power plant on the St. Mary's River in Sault Ste.
Marie, Michigan. In addition, Edison Sault owns and operates a 4.8 MW
diesel-fired peaking power plant.
iii. Electric Transmission and Distribution Facilities
At December 31, 1999, WEPCO's electric transmission and distribution
system had 2,870 miles of transmission circuits, of which 711 miles were
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operating at 345 kilovolts, 123 miles at 230 kilovolts, 1,652 miles at 138
kilovolts, and 384 miles at voltage levels less than 138 kilovolts. At December
31, 1999, WEPCO was operating 21,927 pole miles of overhead distribution lines
and 16,295 miles of underground distribution cable, as well as 350 distribution
substations and 233,726 line transformers.
Edison Sault owns two 138 kilovolt submarine transmission cable
circuits, which interconnect with Consumers Energy in the Lower Peninsula of
Michigan, as well as two 138 kilovolt substations, which interconnect with a 46
mile, 138 kilovolt transmission line owned and operated by Cloverland Electric
Cooperative. In total, Edison Sault had 282 miles of transmission line in
service at December 31, 1999, and maintained 792 miles of primary distribution
lines. Edison Sault renders service to its customers through approximately 8,600
line transformers.
Copies of maps showing interconnections of WEPCO and Edison Sault
systems with other systems are attached as Exhibit E-7.
iv. Gas Facilities
At December 31, 1999, WEPCO's gas distribution system included
approximately 7,895 miles of mains connected at 22 gate stations to the pipeline
transmission systems of ANR Pipeline Company ("ANR"), Natural Gas Pipeline
Company of America ("NGPL"), Northern Natural Gas Company ("Northern Natural"),
and Great Lakes Transmission Company. WEPCO has a liquefied natural gas storage
plant, which converts and stores in liquefied form natural gas received during
periods of low consumption. The liquefied natural gas storage plant has a
send-out capability of 70,000 dekatherms per day. WEPCO also has propane tanks
for peaking purposes. These tanks can provide approximately 7,000 dekatherms of
supply to the system.
v. Other WEC Businesses
WEPCO also operates two district steam systems for space heating and
processing. These systems are located in Milwaukee and in the City of Wauwatosa,
Wisconsin, and are subject to regulation by the Wisconsin Commission. The
combined systems consist of approximately 43 miles of high and low pressure
mains and related regulating equipment. Steam for the Milwaukee system is
supplied by WEPCO's Valley power plant. Steam for the Wauwatosa system is
supplied by WEPCO's Milwaukee County power plant.
In addition, each of following companies are non-utility subsidiaries
of WEC:
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Wisvest Corporation ("Wisvest") is a non-regulated energy services
subsidiary that builds, owns, operates and maintains energy production
facilities and invests in other energy-related projects. Wisvest's subsidiary,
Griffin Energy Marketing, L.L.C., markets energy related services and trades
electricity. In April 1999, Wisvest Connecticut, LLC, a wholly owned subsidiary
of Wisvest, acquired two fossil-fueled power plants in the state of Connecticut;
the Bridgeport Harbor Station (active generating capacity of 590 MW) and the New
Haven Harbor Station (active generating capacity of 466 MW).
Minergy Corp. ("Minergy") is engaged in the business of developing and
marketing proprietary technologies designed to convert high volume industrial
and municipal wastes into value-added products. In 1998, Minergy completed
construction of and placed into commercial operation in Neenah, Wisconsin a
facility that recycles paper sludge from area paper mills into two usable and
salable products: glass aggregate and steam.
Wispark Corporation ("Wispark") develops and invests in real estate,
primarily business parks and industrial buildings.
Wisconsin Energy Capital Corporation ("WECC"), formerly Wisconsin
Michigan Investment Corporation, engages in investing and financing activities.
Activities include advances to affiliated companies and investments in financial
instruments and in partnerships developing low-and moderate-income housing
projects. Other investments also may be made from time to time. WECC's
subsidiary, WMF Corp., engages in financing activities. Any funds obtained by
WMF Corp. through financing arrangements are advanced to WECC.
WEC Nuclear Corporation has an ownership interest in Nuclear
Management Company, LLC. Formed during the first quarter of 1999, it is intended
that Nuclear Management Company, LLC will provide services to WEPCO in
connection with the Point Beach Nuclear Plant and to other companies that own
nuclear generating facilities.
WEC International Inc. ("WECII") serves as WEC's international
investment vehicle. WECII has investments in two joint ventures in the
Netherlands involving waste treatment and by-product utilization activities.
Witech Corporation ("Witech") is a venture capital company operating
in the State of Wisconsin. At December 31, 1999, Witech had investments in
eleven companies and three funds totaling more than $31 million. The companies
include an operator of a nationwide data communications network for the
agriculture industry, a manufacturer of electronic components, and a
manufacturer of motor drives.
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Northern Tree Service, Inc., is engaged in tree trimming in the State
of Michigan's eastern Upper Peninsula.
Badger Service Company ("Badger") holds coal rights in Indiana.
Estimates indicate that 40 million tons of coal could be recovered from this
property with conventional mining techniques. However, there are no current
plans to develop the property. Badger may sell or develop these rights in the
future as conditions warrant.
b. WICOR
i. General
During 1999, Wisconsin Gas sold 71,987 thousand therms of natural gas
and served approximately 533,900 natural gas customers. In addition, Wisconsin
Gas transported 50,260 thousand therms of natural gas for 4,100 customers who
purchased natural gas directly from other suppliers. Transported gas accounted
for approximately 41 percent of the total therms delivered by Wisconsin Gas
during 1999. Wisconsin Gas' maximum daily send-out during 1999 was 872,000
dekatherms on January 4, 1999.
ii. Gas Facilities
Wisconsin Gas owns a gas distribution system, which, on December 31,
1999, included approximately 9,300 miles of distribution and transmission mains,
455,000 service laterals and 535,000 active meters. Wisconsin Gas receives gas
at 147 gate stations throughout Wisconsin connected to the pipeline transmission
systems of ANR, Northern Natural and Viking Gas Transmission Company ("Viking").
Wisconsin Gas has two small propane-air facilities and an LNG storage facility
used for peaking purposes. These facilities can provide an aggregate of
approximately 7,600 dekatherms of supply to the system.
Wisconsin Gas and WEPCO jointly own a 10.5-mile gas distribution line
that is operated by Wisconsin Gas. The line runs from a gate station connection
to Northern Natural in the Town of Eagle to a WEPCO gate station in Mukwonago in
Waukesha County. The line continues from Mukwonago for another 18.7 miles to the
City of New Berlin in Waukesha County under the sole ownership of Wisconsin Gas.
This line, as presently operated, enables the utilities to deliver up to 220,000
dekatherms of gas per day to their southeastern Wisconsin service areas
otherwise supplied by ANR.
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iii. Other WICOR Businesses
The following companies are direct, non-utility subsidiaries of WICOR:
WICOR Energy Services Company ("WICOR Energy") was formed in 1995, and
maintains its principal office and place of business in Milwaukee, Wisconsin.
WICOR Energy engages in natural gas purchasing and selling, and energy and price
risk management.
FieldTech, Inc. ("FieldTech") was formed in 1995 and operated as a
division of Wisconsin Gas until October 1, 1996, when it incorporated as a
subsidiary of WICOR. FieldTech maintains its principal office and place of
business in Milwaukee, Wisconsin and provides meter reading and technology
services for gas, electric and water utilities.
WICOR Industries, Inc. ("WICOR Industries") is an intermediate holding
company, which holds the stock of WICOR's manufacturing subsidiaries. WICOR
Industries owns 100 percent of the voting securities of five direct
subsidiaries: Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump Manufacturing
Company ("SHURflo"), Hypro Corporation, WEXCO of Delaware, Inc., and WICOR FSC,
Inc. WICOR Industries and its subsidiaries manufacture pumps and fluid
processing equipment, including filtration equipment for residential,
agricultural, and industrial markets worldwide. Manufacturing activities are
conducted by plants in the United States, Australia, China, Germany, India,
Italy, Mexico, and New Zealand. At December 31, 1999, WICOR Industries had total
assets of $401 million. During 1999, WICOR Industries had operating revenues on
an unaudited, pro forma basis of $511 million and net income of $30 million.
WICOR made five acquisitions in 1999 to expand its pump and filtration
manufacturing businesses. On May 26, 1999, WICOR acquired Omni Corporation
("Omni"), a privately-held manufacturer of water filtration products primarily
for residential use which has its manufacturing operations in Hammond, Indiana,
in a cash-for-stock transaction. The Omni operations will be integrated into
Sta-Rite. On June 10, 1999, WICOR acquired CUMA, S.A. ("CUMA"), a privately-held
manufacturer of pumps for irrigation, industrial and residential applications
with its manufacturing operations in Monterrey, Mexico, in a cash-for-stock
transaction. CUMA will be integrated into Sta-Rite's Mexican subsidiary. On
October 7, 1999, WICOR acquired Western Dispensing Technologies, Inc. ("Western
Dispensing"), a privately-held company with its manufacturing operations in
Santa Barbara, California, in a cash-for-stock transaction, and on October 8,
1999, WICOR acquired Simer Pump, a division of the Rival Company of Kansas City,
in a cash-for-assets transaction. Western Dispensing designs and
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manufactures chemical dispensing systems used in commercial laundry, janitorial
and institutional applications. The Western Dispensing operations will be
integrated into SHURflo. Simer Pump manufactures sump, utility, water well and
emergency back-up pumps and accessories. The Simer Pump operations will be
integrated into Sta-Rite.
On December 30, 1999, WICOR acquired Precision Fitting & Valve Company
("Precision") and Lurmark Limited ("Lurmark"), two privately held companies that
manufacture and distribute fittings, valves, nozzles, gauges and other equipment
for the agricultural and industrial markets, in a cash-for-stock transaction.
Precision is located in Farmington, Minnesota and Lurmark is located in
Cambridge, England. Both Precision and Lurmark will be integrated into Hypro
Corporation.
WICOR is an owner of Guardian Pipeline, L.L.C. ("Guardian"). Guardian
is a limited liability company formed to construct, own and operate an
interstate natural gas pipeline extending approximately 147 miles from the
Chicago Market Hub near Chicago, Illinois to near the Town of Ixonia, Jefferson
County, in southeastern Wisconsin. A subsidiary of CMS Energy Corporation,
Viking, a subsidiary of Northern States Power Company, and WICOR are equal
one-third members of the limited liability company. The pipeline will have
capacity of 750,000 dekatherms per day, will cost approximately $230 million,
and is planned to be in service by November 1, 2002. Wisconsin Gas has signed a
binding precedent agreement to contract with Guardian for 650,000 dekatherms per
day of capacity. Wisconsin Gas plans to construct a lateral from the terminus of
the Guardian pipeline at Ixonia to its Milwaukee area distribution system, a
distance of approximately 35 miles. Guardian filed an application with the
Federal Energy Regulatory Commission on November 30, 1999, for approval to
construct and operate the pipeline. The Wisconsin Commission has approved the
capacity contract between Guardian and Wisconsin Gas and must authorize
Wisconsin Gas to construct the lateral.
C. Description of Transaction
1. Background
On July 30, 1998, Mr. Richard Abdoo, the Chairman of the Board,
President and Chief Executive Officer of WEC, met informally with Mr. George
Wardeberg, the Chairman and Chief Executive Officer of WICOR, and suggested the
possibility of combining WEC and WICOR. Mr. Wardeberg indicated that WICOR was
not interested in such a combination.
In November, 1998, Mr. Abdoo again approached Mr. Wardeberg about a
possible business combination. Mr. Abdoo and Mr. Wardeberg talked several times,
and Mr. Wardeberg agreed to discuss the matter with the WICOR Board of
Directors.
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At a meeting on December 15, 1998, the WICOR Board of Directors
directed its management to consider the feasibility of a business combination
with WEC and to pursue exploratory discussions if an appropriate confidentiality
agreement could be negotiated. On January 14, 1999, WEC and WICOR executed a
confidentiality agreement. Throughout the remainder of January and February, Mr.
Abdoo and Mr. Wardeberg continued their discussions.
At a meeting on January 26, 1999, the WICOR Board of Directors
discussed a possible business combination with WEC and encouraged management to
pursue discussions with WEC management. WICOR management updated the WICOR Board
on the status of the discussions at its meeting on February 25, 1999. At a
meeting on January 28, 1999, the WEC Board of Directors discussed a possible
business combination with WICOR and encouraged management to pursue discussions
with WICOR management. WEC management updated the WEC Board on the status of the
discussions at its meeting on February 16, 1999.
On March 8, 1999, WICOR engaged Merrill Lynch, Pierce, Fenner & Smith
Incorporated and on March 14, 1999, WEC engaged Chase Securities Inc. to assist
in analyzing a possible transaction. Discussions between WEC and WICOR
representatives continued throughout March and April. At the end of March and in
April, senior management of WEC and WICOR met to review operations and financial
data.
The WEC Board of Directors received another update concerning the
status of the Transaction at its meeting on April 27, 1999, and again authorized
WEC management to continue discussions with WICOR. The WEC Board discussed a
proposal in which WICOR shareholders would receive a fixed price of $30 per
share.
On May 16, 1999, the WEC and WICOR senior management met for detailed
discussions of structure, management and employee issues.
On May 20, 1999, the WICOR Board of Directors met to discuss the
proposed transaction. The WICOR Board indicated that it was willing to consider
a combination with WEC, but only in a transaction valued at not less than $31.50
per share of WICOR Common Stock. Following the meeting, the parties continued to
exchange information and proposals. WICOR management updated the WICOR Board at
its meeting on June 1, 1999. The WICOR Board again determined that a price of
less than $31.50 per share of WICOR Common Stock was not advisable.
At WEC's Board of Directors meeting on June 2, 1999, Mr. Abdoo
reported on the status of discussions. The WEC Board concluded that a fixed
price of $31.50 per share of WICOR common stock might be acceptable, provided
12
<PAGE>
other issues could be resolved. The Board directed WEC management to continue
the discussions.
On June 3, 1999, WEC provided a proposed merger agreement to WICOR.
The senior financial staff of both companies met on June 15 and 17. Legal
counsel and management also met on several occasions during June.
A special meeting of the WEC Board of Directors to consider the
proposed transaction was held on June 25, 1999. A special meeting of the WICOR
Board of Directors to consider the proposed transaction was held on June 25,
1999. On June 27, 1999, both the WEC and WICOR Boards approved the Merger
Agreement and the transaction contemplated thereby. The Merger Agreement then
was executed on June 27, 1999.
2. Merger Agreement
Subject to the terms of the Merger Agreement, at the time of the
Merger, the consideration to be received for each outstanding share of WICOR
common stock, par value $1.00 per share ("WICOR Common Stock") will be $31.50
per share of WICOR Common Stock, provided the Transaction occurs on or before
July 1, 2000. In the event the Transaction occurs after July 1, 2000, the
consideration will be increased by an amount equivalent to daily simple interest
on $31.50 at the rate of six percent per annum for each day after July 1, 2000,
through the closing date (the "Exchange Value"). The consideration will be paid
in the form of cash, common stock of WEC, par value $0.01 per share ("WEC Common
Stock"), or a combination of cash and WEC Common Stock. Prior to the closing
date, WEC will select the percentage of the consideration to be paid in WEC
Common Stock, which may be not less than 40 percent nor more than 60 percent;
the balance of the consideration will be paid in cash. The exchange ratio for
each share of WICOR Common Stock converted into WEC Common Stock will be
determined by dividing the Exchange Value by the average of the closing prices
of the WEC Common Stock on the New York Stock Exchange for the 10 trading days
ending with the fifth trading day prior to the closing date (the "Average WEC
Price"). Each WICOR shareholder may elect to receive cash, WEC Common Stock or a
combination thereof, subject to proration if the cash or stock elections exceed
the maximum amounts permitted. Cash will be paid in lieu of any fractional
shares of WEC Common Stock, which holders of WICOR Common Stock otherwise would
receive. If the Average WEC Price is less than $22.00 per share, WEC may elect
to pay the entire Merger Consideration in cash.
As a result of the Transaction, WICOR will become a wholly-owned
subsidiary of WEC, and WICOR's subsidiaries will be indirect subsidiaries of
WEC. The means of accomplishing such a result will depend on whether the entire
13
<PAGE>
merger consideration is paid in cash or in a combination of cash and WEC stock.
If the former, CEW Acquisition will be merged with and into WICOR, with WICOR
surviving as a wholly-owned subsidiary of WEC. If the latter, WICOR will be
merged with and into CEW Acquisition, with CEW Acquisition remaining a
wholly-owned subsidiary of WEC. The name of CEW Acquisition then would be
changed to WICOR.
3. Management and Operations Following the Transaction
After consummation of the Transaction, WICOR will be a direct
subsidiary of WEC and WICOR's subsidiaries, including Wisconsin Gas, will be
indirect subsidiaries of WEC. A copy of the post-Transaction corporate
organization chart is attached as Exhibit E-10. In addition, the directors and
officers of WICOR will continue in office at WICOR after the Transaction except
that (i) WEC shall appoint new directors to the WICOR Board of Directors which
will represent a majority of the WICOR directors and (ii) Mr. Abdoo will become
Chairman of the Board of Directors of WICOR. The principal corporate and
executive offices of WICOR will remain in Wisconsin.
The Merger Agreement provides that upon the consummation of the
Merger, Mr. Richard A. Abdoo will continue as the Chairman of the Board,
President and Chief Executive Officer of WEC and that George E. Wardeberg, the
Chairman of the Board and Chief Executive Officer of WICOR, will become the Vice
Chairman of the Board of WEC. The Merger Agreement also provides that, in
addition to Mr. Wardeberg, one other member of the current WICOR Board of
Directors will be elected a director of the WEC Board of Directors.
ITEM II: FEES, COMMISSIONS AND EXPENSES
The fees, commissions, and expenses that shall be paid or incurred,
directly or indirectly, in connection with the Transaction are estimated as
follows:
14
<PAGE>
(dollars in
thousands)
Commission filing fee for the Registration Statement on Form S-4........ 258
Hart Scott Rodino Act filing fee........................................ 45
Accountants' fees....................................................... 373
Legal fees and expenses................................................. 2,380
Shareholder communication, proxy solicitation, and exchanging,
printing, and engraving of stock certificates......................... 1,155
NYSE listing fee........................................................ 45
Investment bankers' fees and expenses................................... 10,353
Miscellaneous (including consultants and internal costs)................ 891
Total.............................................................. 15,500
ITEM III: APPLICABLE STATUTORY PROVISIONS
The following Sections of the Act and the Commission's rules
thereunder are or may be directly or indirectly applicable to the proposed
transaction: 9(a)(2), 10 and 3(a)(1). Section 9(a)(2) provides that "[u]nless
the acquisition has been approved by the Commission under Section 10, it shall
be unlawful ... for any person ... to acquire, directly or indirectly, any
security of any public-utility company, if such person is an affiliate ... of
such company and of any other public utility or holding company, or will by
virtue of such acquisition become such an affiliate." Section 2(a)(11) of the
Act defines an "affiliate" as, inter alia, "any person that directly or
indirectly owns, controls, or holds with power to vote, 5 per centum or more of
the outstanding voting securities of such specified company."
Pursuant to the Transaction, WEC, indirectly through its acquisition
of WICOR, will acquire the securities of Wisconsin Gas, a public utility
company. Therefore, following the Transaction, WEC, already an affiliate of
WEPCO and Edison Sault, will be an affiliate of Wisconsin Gas. Accordingly, the
Transaction requires the Commission's approval and is subject to the standards
of Section 10 of the Act. WEC believes that the Transaction satisfies the
standards of Section 10, and therefore requests a Commission order approving the
Transaction.
As noted above, WEC currently is a public utility holding company
exempt from regulation under the Act (other than Section 9(a)(2) thereof)
pursuant to Section 3(a)(1) of the Act. Following the Transaction, WEC and each
of its subsidiary companies from which it derives a material part of its income
will be organized under the laws of the state of Wisconsin and carry on its
utility business substantially within Wisconsin. Accordingly, WEC also requests
an order from the Commission granting WEC an exemption pursuant to Section
3(a)(1) of the Act.
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<PAGE>
A. Section 10 Standards
The statutory standards to be considered by the Commission in
evaluating the Transaction are set forth in Sections 10(b), 10(c) and 10(f) of
the Act. For the reasons set forth in detail below, the Transaction fully
complies with such sections.
1. Section 10(b)
Section 10(b) provides that the Commission shall approve an
acquisition unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to
an extent detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of the
holding-company system of the applicant or will be detrimental to the
public interest or the interest of investors or consumers or the
proper functioning of such holding-company system.
a. Section 10(b)(1)
Under Section 10(b)(1), the Commission may not approve a proposed
acquisition if it finds that the proposed acquisition will "tend towards
interlocking relations or the concentration of control of public utility
companies of a kind or to an extent detrimental to the public interest or the
interest of investors or consumers." Thus, Section 10(b)(1) does not prohibit an
acquisition merely because the acquisition causes interlocking relations or
increases concentration of control to some degree. Instead, the Commission will
determine whether any detrimental effects from any interlocking relations or
concentration of control caused by the merger outweigh the merger benefits.
16
<PAGE>
i. Interlocking Relationships
Any acquisition subject to Section 9(a)(2) will create interlocking
relations between previously unrelated companies. As the Commission has noted,
"with any addition of a new subsidiary to a holding company system, the
Acquisition will result in certain interlocking relationships between [the two
merging companies]." Northeast Utilities, Holding Company Act Release No. 25221
(December 21, 1990), modified on other grounds, Holding Company Act Release No.
25273 (March 15, 1991), aff'd sub nom. City of Holyoke Gas & Elec. Dep't v. SEC,
972 F.2d 358 (D.C. Cir. 1992) ("Northeast I"). The Commission also has
recognized that such "interlocking relationships are necessary to integrate [the
two merging companies.]" Id.
After completion of the Transaction, WEC will appoint a majority of
the WICOR Board of Directors. In addition, two members of the WICOR Board of
Directors will become members of the WEC Board of Directors. These interlocking
relationships will serve to integrate WEC and WICOR. Thus, the interlocking
relationships that will occur will not be detrimental to the interests protected
by the Act and are not prohibited by Section 10(b)(1).
ii. Concentration of Control
The Transaction will not result in a concentration of control
detrimental to the public interest in violation of Section 10(b)(1). The
Transaction will not create an excessively large merged company. Following the
Transaction, WEC will have total utility assets of approximately $7.0 billion,
total utility revenues of approximately $3.4 billion, and will serve
approximately one million electric utility customers and 921,000 gas utility
customers. The Commission has recently approved a number of transactions which
resulted in holding companies of a much larger size.1
Nor will the Transaction have an adverse effect on competition in the
natural gas or electric industries. As discussed below, as a result of the
Transaction, there will neither be a loss of natural gas vs. electricity
competition nor a loss of gas-to-gas competition. The Transaction will not
result in an increased concentration of market power in the natural gas or
electric industries. Indeed, in approving the Transaction, the Wisconsin
Commission found that "all issues related to market power can be successfully
- ---------------
1 See PP&L Resources, Inc., Rel. No. 35-26905 (August 12, 1998) ("PP&L")
(utility assets of approximately $10 billion; utility revenues of
approximately $3.1 billion and approximately 1.2 million utility
customers); TUC Holding Co., Rel. No. 35-26749 (August 1, 1997) ("TUC")
(utility assets of approximately $19.6 billion; utility revenues of
approximately $6.9 billion and approximately 2.7 million utility
customers).
17
<PAGE>
dealt with by adoption of mitigation measures" imposed by that commission. See
Final Decision at 11, attached hereto at Exhibit D-2; see also Exhibit I-1
(responses submitted by WEC and WICOR to certain data requests in the approval
proceeding pending before the Wisconsin Commission).
With respect to competition between electricity and natural gas, the
competitive overlap between WEPCO and Wisconsin Gas in terms of service areas is
substantial, but the competitive overlap in end uses of energy is meager.
Regulation, not interfuel competition, determines customer prices; interfuel
competition is such a weak constraint that deregulation of gas and electric
distribution has not been considered seriously in Wisconsin. The role of the
energy utility companies in such interfuel competition as does exist is
virtually non-existent. In addition, the weak role of competition between
electricity and gas as a constraint on delivered prices is shown by the
continued existence of combination utilities. Most gas customers in Wisconsin
are served by combination companies. In those states where open retail access
for electricity and gas is occurring, utilities have not been required to divest
their gas or electric operations. To the contrary, there have been a number of
recent convergence mergers, where electricity companies have bought gas
operations, including gas LDC operations with overlapping territories.
With respect to gas-to-gas competition, Wisconsin Electric and
Wisconsin Gas are not currently competing for gas customers. Wisconsin Electric
and Wisconsin Gas do not expect any future head-to-head competition for new
service territories due to the companies' economic criteria for expansion.
Moreover, the Transaction will not result in an increase of market
power. First, WICOR does not participate in the same markets for retail or
wholesale electricity. As a result, the combination of WEC with WICOR will have
no impact whatsoever on concentration in those product markets. Similarly, while
Wisconsin Gas and the gas operations of WEPCO do participate in the retail
natural gas product market, the geographic markets they serve are distinct.
Absent any overlap of geographic markets, a combination of the two companies
will have no impact on concentration in any geographic market for retail gas.
If the retail product market were defined more broadly to include both
retail gas and retail electricity, then the combination of WICOR and WEC would
lead to an increase in concentration in the geographic market in which Wisconsin
Gas' retail gas service overlaps with WEPCO's retail electric service. However,
because of the weakness of gas-electric competition discussed above, such an
expansive definition of the product market would be erroneous. Accordingly, the
Transaction will not create an increased concentration of market power.
The Transaction will provide important competitive benefits. The
merged company will be stronger and better equipped to compete effectively in
18
<PAGE>
rapidly changing energy markets. In addition, as discussed herein, the
Transaction is expected to result in efficiencies and economies for customers,
investors, and the public. The Commission will weigh such benefits against any
concerns about concentration of control. See American Electric Power Co., 46
S.E.C. 1299 (1978).
Finally, under the HSR Act and regulations thereunder, the Transaction
cannot be consummated until WEC and WICOR have filed Notification and Report
Forms with the Department of Justice ("DOJ") and the Federal Trade Commission
("FTC") describing the effects of the Transaction on competition in relevant
markets, and expiration or termination of the required waiting period. On
September 22, 1999, WEC and WICOR filed the required Notification and Report
Forms and in early March 2000 the FTC closed its review of the Transaction.
b. Section 10(b)(2)
Pursuant to Section 10(b)(2) of the Act, the Commission must determine
whether the consideration to be paid in connection with the Transaction,
"including all fees, commissions and other renumeration . . . is not reasonable
or does not bear a fair relation to the sums invested in or the earning capacity
of . . . the utility assets underlying the securities to be acquired . . . ."
i. Fairness of Consideration
When determining whether consideration for an acquisition satisfies
the fair and reasonable test of Section 10(b)(2), the Commission has considered:
(i) the market price at which securities have traded; (ii) whether the purchase
price was decided as the result of arm's-length negotiations; (iii) whether each
party's board of directors has approved the purchase price; (iv) the opinions of
investment bankers, and (v) the earnings, dividends and book and market value of
the shares of the company to be acquired. See American Natural Gas Co., Holding
Company Act Release No. 15620 (December 12, 1966), Consolidated Natural Gas Co.,
Holding Company Act Release No. 25040 (February 14, 1990). In accordance with
the standards the Commission previously has established, the consideration to be
paid by WEC in the Transaction is reasonable and bears a fair relation to the
earnings capacity of the utility assets underlying the WICOR Common Stock.
Each share of WICOR Common Stock will be converted into the right to
receive $31.50 per share in cash, WEC Common Stock, or a combination of the two.
As shown in the table below, the quarterly data, high and low, for WICOR Common
Stock provide support for the consideration for each share of WICOR Common
Stock.
19
<PAGE>
<TABLE>
<CAPTION>
Dividends
Paid Per
WICOR High* Low* Common Share
1996
<S> <C> <C> <C>
First Quarter $17 7/32 $15 1/16 $0.205
Second Quarter 18 7/8 16 3/8 0.205
Third Quarter 18 7/8 16 13/16 0.21
Fourth Quarter 18 7/16 17 0.21
1997
First Quarter $18 15/16 $17 $0.21
Second Quarter 19 7/8 16 11/16 0.21
Third Quarter 21 29/32 19 13/32 0.215
Fourth Quarter 23 15/16 20 1/2 0.215
1998
First Quarter $24 11/32 $21 7/16 $0.215
Second Quarter 24 3/4 21 1/4 0.215
Third Quarter 24 5/16 20 1/8 0.22
Fourth Quarter 25 1/2 19 5/8 0.22
* Adjusted for a 2-for-1 stock split effective in May 1998.
</TABLE>
The $31.50 purchase price represents an 18.6 percent premium above
WICOR's closing stock price on June 25, 1999, the last trading day before the
Transaction was announced.
Moreover, as explained herein and in a copy of the Proxy Statement
attached as Exhibit C-1, the consideration to be paid by WEC was the result of
extensive, lengthy, arms-length negotiations between the management and advisors
of WEC and WICOR. In addition, the Transaction has been approved by both the WEC
and WICOR Boards of Directors, and is subject to the approval of the WEC and
WICOR shareholders. At separate meetings held October 27, 1999, the WEC and
WICOR shareholders each approved the Transaction. Finally, financial advisors
for both WEC and WICOR reviewed extensive information concerning the companies
and analyzed a variety of valuation methodologies. An opinion from WEC's
financial adviser, Chase Securities Inc. (see Exhibit F-3), states that the
consideration to be paid by WEC with respect to the Merger is fair, from a
financial point of view, to WEC. An opinion from WICOR's financial adviser,
Merrill Lynch, Pierce, Fenner & Smith Incorporated (see Exhibit F-4), states
that the consideration to be received by WICOR's shareholders with respect to
the Transaction is fair, from a financial point of view, to WICOR and WICOR's
shareholders. Accordingly, the consideration to be paid in accordance with the
Transaction is fair and reasonable in accordance with the standards of Section
10(b)(2).
20
<PAGE>
ii. Reasonableness of Fees
The overall fees, commissions and expenses WEC and WICOR expect to
incur in connection with the Transaction are set forth in Item II to this
Application/Declaration. WEC and WICOR together expect to incur total costs of
approximately $16 million.
WEC believes that the estimated fees and expenses bear fair relation
to WICOR's value and the Transaction savings, and are fair and reasonable.
Northeast Utilities, Holding Company Act Release No. 25548 (June 3, 1992),
modified on other grounds, Holding Company Act Release No. 25550 (June 4, 1992)
("Northeast II") (Commission considers whether fees and expenses bear a fair
relation to the value of the company to be acquired and the savings to be
achieved by the acquisition). As discussed below, the expected savings that will
be achieved by the Transaction substantially will outweigh the estimated fees.
Furthermore, the estimated overall fees are reasonable as compared to the fees
approved by the Commission in other merger transactions.2 Thus, the fees to be
incurred in connection with this Transaction are consistent with the standards
of Section 10(b)(3).
c. Section 10(b)(3)
Section 10(b)(3) of the Act provides that the Commission may not
approve an acquisition if "such acquisition will unduly complicate the capital
structure of the holding-company system ... or will be detrimental to the public
interest or the interest of investors or consumers or the proper functioning of
such holding-company system."
i. Capital Structure
The proposed combination of WEC and WICOR will not unduly complicate
the capital structure of the merged company. As a result of the Transaction, WEC
will acquire 100 percent of the common stock of WICOR, and will continue to own
100 percent of the common stock of WEPCO and Edison Sault. The Transaction will
not affect the outstanding securities of WEPCO, Edison Sault or WICOR (including
Wisconsin Gas), including their long-term debt obligations. The only issued and
outstanding voting securities of WEC are and will be WEC Common Stock.
- ---------------
2 See TUC (fees and expenses of $37 million); Sierra Pacific Resources and
Nevada Power Co., Rel. No. 27054 (July 26, 1999) (fees and expenses of $26
million).
21
<PAGE>
The Commission has determined that acquisitions do not unduly
complicate the capital structure of a holding company system if the purchaser's
capital structure is negligibly affected by the acquisition and the
debt-to-equity ratio of the merged holding company following the acquisition
falls within the seventy-to-thirty percent of debt-to-common equity generally
prescribed by the Commission. Northeast I; Entergy Corporation, Holding Company
Act Release No. 25952 (December 17, 1993).
Set forth below are summaries of the historical capital structures of
WEC and WICOR at June 30, 1999:
<TABLE>
<CAPTION>
WEC and WICOR Historical Capital Structures
-------------------------------------------
(In Millions)
WEC WICOR
--- -----
$ % % %
<S> <C> <C> <C> <C>
Long-Term Debt* 2,109.3 49.15 205.9 32.70
Trust Preferred Securities of 200.0 4.66 0.0 0.0
Sub
Preferred Equity 30.5 0.71 0.0 0.00
Common Equity 1,951.9 45.48 423.8 67.30
------- ----- ----- -----
Total Capitalization 4,291.7 100.00 629.7 100.00
======= ====== ===== ======
Short-Term Debt 273.9 17.8
===== ====
</TABLE>
The pro forma consolidated capital structure of a combined WEC and
WICOR at June 30, 1999, would have been as follows:
22
<PAGE>
<TABLE>
<CAPTION>
Post-Transaction WEC's Pro Forma Consolidated Capital Structure**
---------------------------------------------------------------
(in Millions)
$ %
<S> <C> <C>
Long-Term Debt* 3,037.3 53.07
Trust Preferred Securities 200.0 3.49
of Sub
Preferred Equity 30.5 0.53
Common Equity 2,455.9 42.91
------- -----
Total Capitalization 5,723.7 100.00
======= ======
Short-Term Debt 291.7
=====
* Includes current portion of long-term debt.
** Purchase price is assumed to be financed with 40 percent stock and 60
percent debt. WEC may use bridge debt to finance transaction,
depending on market conditions and other factors.
</TABLE>
As the above tables reveal, WEC's debt-to-equity ratio will not be
affected by any material degree by the Transaction. Following the Transaction,
WEC will have a pro forma common equity to total capitalization ratio of
approximately 42.91 percent, which significantly exceeds the Commission's
traditionally acceptable ratio.
ii. Public Interest, Interest of Investors and Consumers
and Proper Functioning of Holding Company System
Section 10(b)(3) also requires the Commission to determine whether the
Transaction will be detrimental to the public interest, the interests of
investors or consumers or the proper functioning of the post-Transaction WEC
system. As set forth more fully herein, the Transaction is expected to result in
substantial cost savings and synergies, and will improve the efficiencies of the
utility systems. Thus, the Transaction will be in the public interest and the
interest of investors and consumers, and will not be detrimental to the proper
functioning of the resulting holding company system.
23
<PAGE>
2. Section 10(c)
a. Section 10(c)(1)
Pursuant to Section 10(c)(1), the Commission may not approve an
acquisition of securities or utility assets, or of any other interest, which is
unlawful under the provisions of Section 8 or is detrimental to the carrying out
of the provisions of Section 11. Section 8, which provides that a registered
holding company may not acquire an interest in an electric utility and a gas
utility serving substantially the same territory without the express approval of
the state commission when state law prohibits or requires approval of such an
acquisition, applies only to registered holding companies and, therefore, is not
applicable to this transaction. Although Section 8 is not applicable to the
Transaction, WEC and WICOR will secure the approval of the Wisconsin Commission
prior to consummating the Transaction.
Section 11(b)(1) provides that unless it satisfies the requirements of
Section 11(b)(1)(A)-(C), a registered holding company must limit its operations
to those of "a single integrated public utility system, and to such other
businesses as are reasonably incidental, or economically necessary or
appropriate to the operations of such integrated public-utility system." The
Commission previously has determined that "a holding company may acquire utility
assets that will not, when combined with the acquiring company's existing
utility assets, make up an integrated system or comply fully with the
[requirements of Section 11(b)(1)(A)-(C)], provided that there is de facto
integration of the utility properties and the holding company will be exempt
from registration under Section 3 of the Act following the acquisition." CMP
Group, Inc., Holding Company Act Release No. 26977 (February 12, 1999); see also
Sierra Pacific Resources, Holding Company Act Release No. 27054 (July 26, 1999).
As discussed below in connection with the standards of Section 10(c)(2), the
Transaction satisfies these standards for approval. The Transaction will tend
toward the development of an integrated system that will benefit consumers,
investors and the public.
b. Section 10(c)(2)
Section 10(c)(2) provides that the Commission may not approve an
acquisition "unless the Commission finds that such acquisition will serve the
public interest by tending towards the economical and the efficient development
of an integrated public-utility system ..." As noted above, the Commission has
determined that an exempt holding company may consist of more than one
integrated public utility system, provided that there is de facto integration of
the combined utility properties and that the transaction serves the public
interest. The combined WEC/WICOR system will consist of one integrated electric
utility system and one integrated gas utility system, which in turn will be
integrated in a number of important ways.
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<PAGE>
i. Integrated Electric Utility System
With respect to electric utility facilities, Section 2(a)(29)(A)
defines an integrated electric utility system as:
A system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility
assets, whether owned by one or more electric utility companies, are
physically interconnected or capable of physical interconnection and
which under normal conditions may be economically operated as a single
interconnected and coordinated system confined in its operations to a
single area or region, in one or more States, not so large as to
impair (considering the state of the art and the area or region
affected) the advantages of localized management, efficient operation,
and the effectiveness of regulation.
WEC conducts electric utility operations through its two present
subsidiaries, WEPCO and Edison Sault. The Commission previously has determined
that the electric utility operations of WEPCO and Edison Sault constitute a
single integrated electric utility system. WEC, supra. Following the
Transaction, the electric utility operations of WEC will continue to constitute
an integrated electric utility system.
ii. Integrated Gas Utility System
With respect to gas utility facilities, Section 2(a)(29)(B) defines an
integrated gas utility system as:
a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by
being operated as a single coordinated system confined in its
operations to a single area or region, in one or more States, not so
large as to impair (considering the state of the art and the area or
region affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation; Provided, that gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region.
25
<PAGE>
WEC currently conducts its gas utility operations through its
subsidiary, WEPCO. WICOR currently conducts its gas utility operations through
its subsidiary, Wisconsin Gas. As discussed below, following the Transaction,
the gas utility operations of WEPCO and Wisconsin Gas will constitute an
integrated gas utility system within the meaning of Section 2(a)(29)(B).
(A) Single Area or Region
The WEPCO and Wisconsin Gas retail gas service areas are located
wholly within the state of Wisconsin. The two companies share approximately 100
miles of common gas service territory boundary in southeast Wisconsin (through
Milwaukee, Waukesha, Dodge, and Jefferson counties) and approximately 80 miles
of common gas service territory boundary in the Fox Valley area of central
Wisconsin (through Calumet, Outagamie, Winnebago, Waushara, and Waupaca
counties). Thus, the retail gas service areas of WEPCO and Wisconsin Gas are
adjacent and located in close proximity. The Commission has approved mergers
between gas utilities far more separated. See MCN Corporation, 62 SEC Docket
2379 (September 17, 1996) (approving acquisition of an interest in a gas utility
company by an exempt gas utility holding company whose service area is located
more than 500 miles distant in a non-adjoining State) ("MCN"). The two companies
also jointly own the high-pressure Eagle distribution line from the Northern
Natural Gas Pipeline Eagle Gate to Mukwonago.
Not only are the gas operations of WEPCO and Wisconsin Gas adjacent
and located in close proximity, they also share common sources of gas supply.
Section 2(a)(29)(B) specifically provides that "gas utility companies deriving
natural gas from a common source of supply may be deemed to be included in a
single area or region." Historically, in determining whether two gas companies
share a "common source of supply," the Commission has placed primary importance
on whether the gas supply of the two companies is derived from the same gas
producing areas (or basins), recognizing that the most significant economies and
efficiencies that two entities can achieve is through the coordination and
management of gas supply. Both WEPCO and Wisconsin Gas obtain all of their gas
supply from the same basins, namely the Oklahoma and Texas basins, the Gulf of
Mexico and western Canada. Wisconsin Gas has contracted for long-term firm
capacity on a relatively equal basis from each of these areas. WEPCO contracts
for firm capacity from the Oklahoma and Texas basins and the Gulf of Mexico on a
relatively equal basis, with a somewhat smaller amount from Canada. Wisconsin
Gas has contracts for firm supplies with terms in excess of 30 days with 18 gas
suppliers for gas produced in each of the three producing areas discussed above.
WEPCO has contracts for firm supplies with terms in excess of 30 days with 16
gas suppliers for gas produced in each of the three producing areas discussed
above.
In addition, WEPCO and Wisconsin Gas obtain transportation services
from several of the same interstate gas pipelines, namely ANR, Northern Natural
26
<PAGE>
and Viking. Although ANR can supply all of Wisconsin Gas' Milwaukee area annual
market requirements, Northern Natural can supply approximately 25 percent of
those requirements. Wisconsin Gas also has contracted with ANR for substantial
underground storage capacity in Michigan. Wisconsin Gas' distribution system
includes mains connected at 146 gate stations to the pipeline transmission
systems of ANR, Northern Natural and Viking. WEPCO's gas distribution system
include mains connected at 21 gate stations to the pipeline transmission systems
of ANR, Northern Natural and NGPL. Accordingly, there is substantial evidence
that WEPCO and Wisconsin Gas share a common source of supply, in terms of supply
basins, suppliers and pipelines.
Any determination of the appropriate size of the area or region calls
for consideration of the "state of the art" in the gas industry. In this regard,
the "state of the art" in the gas industry continues to evolve and change,
primarily as a result of decontrol of wellhead prices, the continuing
development of an integrated national gas transportation network, the emergence
of marketers and brokers, and the "un-bundling" of the commodity and
transportation functions of pipelines in response to various FERC initiatives.3
Of particular importance has been the formation of a national network of trading
hubs at locations where interstate pipelines intersect.
Several interstate gas pipelines, including ANR and NGPL, converge in
an area near Chicago, Illinois. The Alliance pipeline currently is under
construction. Alliance originates in western Canada and terminates at Joliet.
Alliance will have capacity of 2.0 billion dekatherms per day. Two large gas
distribution companies, Peoples Energy and Nicor Gas, have facilities in the hub
and are able to provide services for gas purchasers. This aggregation of
pipelines and large gas utilities forms what has been denominated the "Chicago
Market Hub". Several proposed pipelines could become part of the hub, and in the
future, it is likely that the hub could be expanded to include several other
existing pipelines that operate in northern Illinois. Currently, and increasing
in the future as long-line capacity contracts expire, the Chicago Market Hub
will be a place where gas is priced, sold and delivered in a competitive market.
Utilities and other shippers will be able to purchase gas originating in most of
the major gas producing areas of North America at the hub, and they will not
have to hold pipeline capacity contracts from the point of production to their
markets to do so as has been necessary historically. The pipelines or utilities
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3 The Commission has taken notice of the regulatory and technological changes
that have reshaped the natural gas industry over the past two decades. See
1995 Report, pp. 29 - 31. In the Report, the Division recommended that the
Commission "interpret the single area or region' requirement [of Section
2(a)(29)] flexibly, recognizing technological advances, consistent with the
purposes and provisions of the Act." Id. at 73.
27
<PAGE>
with facilities in or near the Chicago Market Hub offer ancillary services, such
as storage, parking, lending, and back-haul services, thereby providing the
flexibility gas utilities need to manage their changing seasonal, and even
daily, demands for gas. The proposed Guardian pipeline is designed to access gas
delivered at the Chicago Market Hub from any of the pipelines comprising the hub
and to transport the gas to Wisconsin. Substantially all of the capacity that
Wisconsin Gas and WEPCO use to serve southeastern Wisconsin is under long-term,
long-haul or storage contracts that expire between now and October 31, 2003.
Therefore, in the near future Wisconsin Gas and WEPCO will have the opportunity
to restructure their capacity portfolios to take advantage of the gas purchasing
opportunities at the Chicago Market Hub.
With the construction of new pipeline capacity and development of
trading "hubs" and market centers, which now provide buyers with access to gas
supplies in many producing areas, the gas industry is rapidly evolving into a
fully integrated, competitive, marketplace. These developments will allow WEPCO
and Wisconsin Gas even greater flexibility in coordinating and managing common
supply.
The Chicago hub is of special importance as a result of the increased
importation of low-cost western Canadian gas. With the expansion of import
capacity for western Canadian gas into the Chicago area, it is projected that
Illinois will experience an excess supply situation. Given the proximity of
Chicago to Wisconsin, it is likely that the Chicago hub itself will become an
important supply region for the majority of gas moving to Wisconsin. Both WEC
and WICOR have continued interest in expanding market access to the Chicago hub.
Because WEPCO and Wisconsin Gas share access through their respective
pipeline transporters to several industry-recognized market and supply-area
hubs, including the Chicago hub, WEPCO and Wisconsin Gas will have the physical
ability to coordinate and manage their portfolios of supply, transportation, and
storage.
(B) Coordinated Operations
After the Transaction, WEC and WICOR plan to coordinate the operation
of their gas utility operations in a number of ways. For example, WEPCO and
Wisconsin Gas plan to evaluate ways to consolidate their gas purchasing
functions, and expect that significant savings will result as a result of the
combined company's increased options and flexibility. WEPCO and Wisconsin Gas
also will evaluate ways to combine their service center operations where
feasible. The merged company will explore the possibility of high-pressure
pipeline interconnects between the systems. These and other coordinated
operations are discussed in detail in the Testimony of James F. Schott, filed
with the Wisconsin Commission in support of WEC's Application for the Wisconsin
28
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Commission's approval of the Transaction (the "Wisconsin Application") (Exhibit
D-1).
(C) Economies and Efficiencies
It is estimated that the Transaction will produce annual savings of
approximately $35 million, as the result of lower costs for purchased gas;
materials and services through enhanced purchasing power; elimination of
duplicative resources and services; and consolidation of operations and
functions over time, as described above. The expected benefits and cost savings
flowing from the Transaction are discussed in the Wisconsin Application (Exhibit
D-1).
(D) Absence of Impairment
The integrated gas utility system consisting of the gas operations of
WEPCO and Wisconsin Gas will not be so large as to impair the advantages of
localized management, efficient operation and the effectiveness of regulation.
As discussed, the Transaction will result in substantial economies and
efficiencies. The Transaction will not impair the effectiveness of state
regulation. Each of WEPCO, Edison Sault, and Wisconsin Gas will continue its
separate existence as before and their utility operations will remain subject to
the same regulatory authorities by which they are presently regulated, namely
the Wisconsin Commission, the Michigan Commission, the FERC, and the NRC.
iii. De Facto Integration
Following the Transaction, there will be clear de facto integration of
WEC's integrated electric utility system and integrated gas utility system.
First, the respective service territories of the gas and electric systems will
be "overlapping, adjacent or in close proximity to each other." See CMP, PP&L.
Second, the electric and gas systems will be coordinated with respect to a
number of administrative, operational and support functions. Such functions
being considered include: human resources, payroll, customer service, meter
reading, billing, supply chain, fleet, accounting and treasury. Third, the
Transaction will result in a company that will be able more efficiently and
effectively to provide energy services to customers. Fourth, the Transaction
will not result in any of the abuses, such as "ownership of scattered utility
properties, inefficient operations, lack of local management or evasion of state
regulation, that Section 11(b)(1) and the Act generally were intended to
address." See Id. Accordingly, the Transaction will satisfy the requirements of
Section 10(c)(2).
29
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3. Section 10(f)
Section 10(f) provides that the Commission may not approve an
acquisition "unless it appears to the satisfaction of the Commission that such
State laws as may apply in respect of such acquisition have been complied with
...."
As described below, the Transaction requires the approval of the
Wisconsin Commission. On July 20, 1999, WEC filed the Wisconsin Application, a
copy of which is attached hereto as Exhibit D-1. By order dated March 14, 2000,
attached hereto as Exhibit D-2, the Wisconsin Commission approved the
Transaction. The Michigan Commission does not have the statutory authority to
review holding company-to-holding company mergers or acquisitions. Thus, no
approval or authorization of the Michigan Commission is required for the
Transaction.
B. Section 3(a)(1)
Section 3(a)(1) provides that unless the Commission would find an
exemption "detrimental to the public interest or the interest of investors or
consumers," the Commission shall exempt any holding company from registration if
such holding company and every subsidiary company thereof, which is a
public utility company from which such holding company derives,
directly or indirectly, any material part of its income, are
predominantly intrastate in character and carry on their business
substantially in a single State in which such holding company and
every such subsidiary company thereof are organized.
As previously noted, WEC currently is a Section 3(a)(1) exempt holding
company pursuant to Commission order. After consummation of the Transaction, WEC
will continue to satisfy the requirements of Section 3(a)(1). As a result of the
Transaction, WEC will acquire one additional utility subsidiary, Wisconsin Gas.
Wisconsin Gas is incorporated under the laws of the state of Wisconsin and
conducts all of its gas business within Wisconsin. The merged company will
obtain approximately 94 percent of its utility gross revenues from within
Wisconsin.4 Moreover, the Transaction will result in significant economies and
efficiencies which will benefit the interests of consumers, investors and the
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4 The remaining seven percent of utility gross revenues come from WEPCO's and
Edison Sault's limited operations in the Upper Peninsula of Michigan.
30
<PAGE>
public. Accordingly, after WEC's acquisition of WICOR, and therefore Wisconsin
Gas, WEC will continue to satisfy the standards of Section 3(a)(1).5
ITEM IV: REGULATORY APPROVALS
As noted above, the Transaction was approved by the Wisconsin
Commission on March 14, 2000 by order attached hereto as Exhibit D-2.
The HSR Act, and rules and regulations thereunder, provide that
certain merger transactions (including the Transaction) may not be consummated
until required information and materials have been furnished to the DOJ and the
FTC and certain waiting periods have expired or been terminated. The FTC closed
its review of the Transaction in early March 2000.
ITEM V: PROCEDURE
The Commission is respectfully requested to issue and publish at the
earliest possible date an order granting and permitting this
Application/Declaration to become effective.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the proposed
Transaction. The Division of Investment Management may assist in the preparation
of the Commission's decision. There should be no waiting period between the
issuance of the Commission's order and the date on which it is to become
effective.
ITEM VI: EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Restated Articles of Incorporation of WEC, as amended and restated
effective June 12, 1995 (Exhibit (3)-1 to WEC's Form 10-Q for the
quarter ended June 30, 1995, File No. 1-9057, and incorporated herein
by reference)**
A-2 By-Laws of WEC, as amended to December 17, 1997 (Exhibit 3.2 to WEC's
Annual Report on Form 10-K for the year ended December 31, 1997, File
No. 1-9057, and incorporated herein by reference)**
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5 WICOR also will continue to satisfy the standards of Section 3(a)(1).
31
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A-3 Restated Articles of Incorporation of WEPCO, as amended and restated
effective January 10, 1995 (Exhibit (3)-1 to WEPCO's Annual Report of
Form 10-K for the year ended December 31, 1994, File No. 1-1245, and
incorporated herein by reference)**
A-4 By-Laws of WEPCO, as amended to December 17, 1997 (Exhibit 3.2 to
WEPCO's Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-1245, and incorporated herein by reference)**
A-5 Restated Articles of Incorporation of WICOR, as amended (Exhibit 3.1
to WICOR's Form 10-Q for the quarter ended July 31, 1998, File No.
1-7951, and incorporated herein by reference)**
A-6 By-Laws of WICOR, as amended**
A-7 Restated Articles of Incorporation of Wisconsin Gas (Exhibit 3.1 to
Wisconsin Gas' Form 10-K for the year ended December 31, 1998, File
No. 1-7951, and incorporated herein by reference)**
A-8 By-Laws of Wisconsin Gas**
A-9 Articles of Incorporation of CEW Acquisition
A-10 By-Laws of CEW Acquisition
B-1 Merger Agreement (Appendix A to WEC and WICOR Joint Proxy
Statement/Prospectus included in WEC Registration Statement on Form
S-4, File No. 333-86827, and incorporated herein by reference)**
C-1 WEC and WICOR Joint Proxy Statement/Prospectus included in WEC
Registration Statement on Form S-4 (File No. 333-86827, and
incorporated herein by reference)**
D-1 Application filed with the Wisconsin Commission requesting approval
of the Transaction**
D-2 Wisconsin Commission order approving the Transaction
E-1 Map of WEPCO electric service area**
E-2 Map of WEPCO transmission system (Exhibit E-6 to WEC's Form U-1,
dated January 16, 1998, File No. 70-9161, and incorporated herein by
reference)**
E-3 Map of WEPCO gas service area**
E-4 Map of Edison Sault electric service area**
E-5 Map of Edison Sault transmission system (Exhibit E-5 to WEC's Form
U-1, dated January 16, 1998, File No. 70-9161, and incorporated
herein by reference)**
E-6 Map of Wisconsin Gas service area**
E-7 Maps showing interconnections of WEPCO and Edison Sault, with each
other and with other systems (Exhibit E-2 to WEC's Form U-1, dated
32
<PAGE>
January 16, 1998, File No. 70-9161, and incorporated herein by
reference)**
E-8 WEC corporate organization chart**
E-9 WICOR corporate organization chart**
E-10 Post-Transaction corporate organization chart**
F-1 Preliminary opinion of counsel
F-2 Past-tense opinion of counsel (to be filed by Amendment with Rule 24
Certificate)
F-3 Opinion of Chase Securities Inc. (Appendix B to WEC and WICOR Joint
Proxy Statement/Prospectus included in WEC Registration Statement on
Form S-4, File No. 333-86827, and incorporated herein by reference)**
F-4 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Appendix C to WEC and WICOR Joint Proxy Statement/Prospectus
included in WEC Registration Statement on Form S-4, File No.
333-86827, and incorporated herein by reference)**
G-1 Combined Annual Report of WEC and WEPCO on Form 10-K for the year
ended December 31, 1998, dated March 25, 1999 (File Nos. 1-9057 and
1-1245 and incorporated herein by reference) **
G-2 Combined Quarterly Report of WEC and WEPCO on Form 10-Q for the
quarter ended September 30, 1999, dated December 30, 1999 (File Nos.
1-9057 and 1-1245 and incorporated herein by reference)
G-3 Annual Report of WICOR and Wisconsin Gas on Form 10-K for the year
ended December 31, 1998, dated March 23, 1999 (File Nos. 1-7951and
1-7530 and incorporated herein by reference) **
G-4 Quarterly Report of WICOR and Wisconsin Gas on Form 10-Q for the
quarter ended September 30, 1999, dated October 26, 1999 (File Nos.
1-7951 and 1-7530 and incorporated herein by reference)
H-1 Proposed Form of Notice**
I-1 Wisconsin Commission Proceeding Responses to Certain Data Requests**
B. Financial Statements
FS-1 WEC Consolidated Balance Sheet at December 31, 1998 (see Annual
Report of WEC on Form 10-K for the year ended December 31, 1998
(Exhibit G-1 hereto))**
FS-1A WEC Consolidated Balance Sheet at September 30, 1999 (see Combined
Quarterly Report of WEC and WEPCO on Form 10-Q for the quarter ended
September 30, 1999, dated December 30, 1999 (Exhibit G-2 hereto))
33
<PAGE>
FS-2 WEC Consolidated Statements of Income for the year 1998 (see Annual
Report of WEC on Form 10-K for the year ended December 31, 1998
(Exhibit G-1 hereto))**
FS-2A WEC Consolidated Statements of Income for the nine month period
ending September 30, 1999 (see Combined Quarterly Report of WEC and
WEPCO on Form 10-Q for the quarter ended September 30, 1999, dated
December 30, 1999 (Exhibit G-2 hereto))
FS-3 WICOR Consolidated Balance Sheet at December 31, 1998 (see Annual
Report of WICOR on Form 10-K for the year ended December 31, 1998
(Exhibit G-3 hereto))**
FS-3A WICOR Consolidated Balance Sheet at September 30, 1999 (see Quarterly
Report of WICOR and Wisconsin Gas on Form 10-Q for the quarter ended
September 30, 1999, dated October 26, 1999 (Exhibit G-4 hereto)
FS-4 WICOR Consolidated Statements of Income for the year 1998 (see Annual
Report of WICOR on Form 10-K for the year ended December 31, 1998
(Exhibit G-3 hereto))**
FS-4A WICOR Consolidated Statements of Income for the nine months ending
September 30, 1999 (see Quarterly Report of WICOR and Wisconsin Gas
on Form 10-Q for the quarter ended September 30, 1999, dated October
26, 1999 (Exhibit G-4 hereto)
**previously filed
ITEM VII: INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Transaction neither involves "major federal actions" nor
"significantly [affects] the quality of the human environment" as those terms
are used in Section 102(2)(C) of the National Environmental Policy Act, 42
U.S.C. Sec. 4332. The only federal actions related to the Transaction pertain to
the required approvals and actions summarized in Item IV, and Commission
approval of this Application/Declaration. Consummation of the Transaction will
not result in changes in the operations of the public utilities involved in the
Transaction that would have any impact on the environment. No federal agency is
preparing an environmental impact statement with respect to this matter.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Application/Declaration to
be signed on its behalf by the undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
BY: /s/ Paul Donovan
-----------------------------
Name: Paul Donovan
Title: Senior Vice President and
Chief Financial Officer
Dated: March 22, 2000
35
ARTICLES OF INCORPORATION
OF
CEW ACQUISITION, INC.
The undersigned incorporator, acting as incorporator of a corporation
under the Wisconsin Business Corporation Law Chapter 180 of the Wisconsin
Statutes (the "WBCL"), adopts the following Articles of Incorporation for such
corporation:
ARTICLE I
Name
The name of the corporation is CEW Acquisition, Inc.
ARTICLE II
Purposes
The purposes for which the corporation is organized are to engage in
any lawful activity within the purposes for which a corporation may be organized
under the WBCL.
ARTICLE III
Capital Stock
The aggregate number of shares which the corporation shall have
authority to issue is Nine Thousand (9,000) shares, consisting of one class
only, designated as "Common Stock," of the par value of one cent ($.01) per
share.
ARTICLE IV
Preemptive Rights
No holder of any stock of the corporation shall have any preemptive
right to purchase, subscribe for, or otherwise acquire any shares of stock of
the corporation of any class now or hereafter authorized, or any securities
exchangeable for or convertible into such shares.
<PAGE>
ARTICLE V
Registered Office and Agent
The address of the initial registered office of the corporation is 411
East Wisconsin Avenue, Suite 2550, Milwaukee, Wisconsin 53202-4497 and the name
of its initial registered agent at such address is Lawdock, Inc.
ARTICLE VI
Incorporator
The name and address of the incorporator is Patrick M. Ryan, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4497.
Dated this 17th day of June, 1999.
----------------------------------------
Patrick M. Ryan
This document was drafted by:
Patrick M. Ryan
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
-2-
BYLAWS
OF
CEW ACQUISITION, INC.
ADOPTED
JUNE 17, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFICES; RECORDS
1.01. Principal and Business Offices................................... 1
1.02. Registered Office and Registered Agent........................... 1
1.03. Corporate Records................................................ 1
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting................................................... 1
2.02. Special Meetings................................................. 2
2.03. Place of Meeting................................................. 2
2.04. Notices to Shareholders.......................................... 2
(a) Required Notice............................................. 2
(b) Adjourned Meeting........................................... 2
(c) Waiver of Notice............................................ 2
(d) Contents of Notice.......................................... 2
(e) Fundamental Transactions.................................... 2
2.05. Fixing of Record Date............................................ 3
2.06. Shareholder List................................................. 3
2.07. Quorum and Voting Requirements................................... 3
2.08. Conduct of Meetings.............................................. 4
2.09. Proxies.......................................................... 4
2.10. Voting of Shares................................................. 4
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers and Number........................................ 4
3.02. Election, Removal, Tenure and Qualifications..................... 5
3.03. Regular Meetings................................................. 5
3.04. Special Meetings................................................. 5
3.05. Meetings By Telephone or Other Communication Technology.......... 5
3.06. Notice of Meetings............................................... 5
3.07. Quorum........................................................... 5
3.08. Manner of Acting................................................. 6
3.09. Conduct of Meetings.............................................. 6
3.10. Vacancies........................................................ 6
3.11. Compensation..................................................... 6
3.12. Presumption of Assent............................................ 6
3.13. Committees....................................................... 7
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<PAGE>
ARTICLE IV. OFFICERS
4.01. Appointment...................................................... 7
4.02. Resignation and Removal.......................................... 7
4.03. Vacancies........................................................ 7
4.04. Chairperson of the Board......................................... 8
4.05. President........................................................ 8
4.06. Vice Presidents.................................................. 8
4.07. Secretary........................................................ 8
4.08. Treasurer........................................................ 8
4.09. Assistants and Acting Officers................................... 9
4.10. Salaries......................................................... 9
ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares.......................................... 9
5.02. Signature by Former Officers..................................... 9
5.03. Transfer of Shares............................................... 9
5.04. Restrictions on Transfer......................................... 10
5.05. Lost, Destroyed or Stolen Certificates........................... 10
5.06. Consideration for Shares......................................... 10
5.07. Stock Regulations................................................ 10
ARTICLE VI. WAIVER OF NOTICE
6.01. Shareholder Written Waiver....................................... 10
6.02. Shareholder Waiver by Attendance................................. 10
6.03. Director Written Waiver.......................................... 11
6.04. Director Waiver by Attendance.................................... 11
ARTICLE VII. ACTION WITHOUT MEETINGS
7.01. Shareholder Action Without Meeting............................... 11
7.02. Director Action Without Meeting.................................. 11
ARTICLE VIII. INDEMNIFICATION
8.01. Indemnification for Successful Defense........................... 11
8.02. Other Indemnification............................................ 12
8.03. Written Request.................................................. 12
8.04. Nonduplication................................................... 12
8.05. Determination of Right to Indemnification........................ 12
8.06. Advance of Expenses.............................................. 13
8.07. Nonexclusivity................................................... 14
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8.08. Court-Ordered Indemnification.................................... 14
8.09. Indemnification and Allowance of Expenses of Employes and Agents. 15
8.10. Insurance........................................................ 15
8.11. Securities Law Claims............................................ 15
8.12. Liberal Construction............................................. 15
8.13. Definitions Applicable to this Article........................... 15
ARTICLE IX. SEAL
ARTICLE X. AMENDMENTS
10.01. By Shareholders.................................................. 16
10.02. By Directors..................................................... 16
10.03. Implied Amendments............................................... 16
-iii-
<PAGE>
ARTICLE I. OFFICES; RECORDS
1.01. Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. Registered Office and Registered Agent. The registered office of
the corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical with the
principal office in the State of Wisconsin. The address of the registered office
may be changed from time to time by any officer or by the registered agent. The
office of the registered agent of the corporation shall be identical to such
registered office.
1.03. Corporate Records. The following documents and records shall be
kept at the corporation's principal office or at such other reasonable location
as may be specified by the corporation:
(a) Minutes of shareholders' and Board of Directors' meetings
and any written notices thereof.
(b) Records of actions taken by the shareholders or directors
without a meeting.
(c) Records of actions taken by committees of the Board of
Directors.
(d) Accounting records.
(e) Records of its shareholders.
(f) Current Bylaws.
(g) Written waivers of notice by shareholders or directors (if
any).
(h) Written consents by shareholders or directors for actions
without a meeting (if any).
(i) Voting trust agreements (if any).
(j) Stock transfer agreements to which the corporation is a
party or of which it has notice (if any).
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the shareholders shall be
held on the second Tuesday of June in each year at 10:00 a.m., or at such other
time and date as may be fixed by or under the authority of the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting is a legal holiday in the State of Wisconsin, such meeting shall be held
on the next succeeding business day. If the election of directors is not held on
the day designated herein, or fixed as herein provided, for any annual meeting
of the shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a meeting of the shareholders as soon
thereafter as may be convenient.
2.02. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
<PAGE>
the Chairperson of the Board, if there is one, the President or the Board of
Directors. If and as required by the Wisconsin Business Corporation Law, a
special meeting shall be called upon written demand describing one or more
purposes for which it is to be held by holders of shares with at least 10% of
the votes entitled to be cast on any issue proposed to be considered at the
meeting. The purpose or purposes of any special meeting shall be described in
the notice required by Section 2.04 of these Bylaws.
2.03. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Wisconsin, as the place of meeting
for any annual meeting or any special meeting. If no designation is made, the
place of meeting shall be the principal office of the corporation but any
meeting may be adjourned to reconvene at any place designated by vote of a
majority of the shares represented thereat.
2.04. Notices to Shareholders. (a) Required Notice. Written notice
stating the place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than five (5) days nor more than sixty (60) days before the
date of the meeting (unless a different time is provided by law or the Articles
of Incorporation), by or at the direction of the Chairperson of the Board, if
there is one, the President or the Secretary, to each shareholder entitled to
vote at such meeting or, for the fundamental transactions described in
subsections (e)(1) to (4) below (for which the Wisconsin Business Corporation
Law requires that notice be given to shareholders not entitled to vote), to all
shareholders. If mailed, such notice is effective when deposited in the United
States mail, and shall be addressed to the shareholder's address shown in the
current record of shareholders of the corporation, with postage thereon prepaid.
At least twenty (20) days' notice shall be provided if the purpose, or one of
the purposes, of the meeting is to consider a plan of merger or share exchange
for which shareholder approval is required by law, or the sale, lease, exchange
or other disposition of all or substantially all of the corpora tion's property,
with or without good will, otherwise than in the usual and regular course of
business.
(b) Adjourned Meeting. Except as provided in the next sentence,
if any shareholder meeting is adjourned to a different date, time, or place,
notice need not be given of the new date, time, and place, if the new date,
time, and place is announced at the meeting before adjournment. If a new record
date for the adjourned meeting is or must be fixed, then notice must be given
pursuant to the requirements of paragraph (a) of this Section 2.04, to those
persons who are shareholders as of the new record date.
(c) Waiver of Notice. A shareholder may waive notice in
accordance with Article VI of these Bylaws.
(d) Contents of Notice. The notice of each special shareholder
meeting shall include a description of the purpose or purposes for which the
meeting is called, and only business within the purpose described in the meeting
notice may be conducted at a special shareholders' meeting. Except as otherwise
provided in subsection (e) of this Section 2.04, in the Articles of
Incorporation, or in the Wisconsin Business Corporation Law, the notice of an
annual shareholders' meeting need not include a description of the purpose or
purposes for which the meeting is called.
(e) Fundamental Transactions. If a purpose of any shareholder
meeting is to consider either: (1) a proposed amendment to the Articles of
Incorporation (including any restated articles); (2) a plan of merger or share
exchange for which shareholder approval is required by law; (3) the sale, lease,
exchange or other disposition of all or substantially all of the corporation's
property, with or without good will, otherwise than in the usual and regular
course of business; (4) the dissolution of the corporation; or (5) the removal
of a director, the notice must so state and in cases (1), (2) and (3) above must
be accompanied by, respectively, a copy or summary of the: (1) proposed articles
of amendment or a copy of the restated articles that identifies any amendment or
other change; (2) proposed plan of merger or share exchange; or (3) proposed
transaction for disposition of all or substantially all of the corporation's
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property. If the proposed corporate action creates dissenters' rights, the
notice must state that shareholders and beneficial shareholders are or may be
entitled to assert dissenters' rights, and must be accompanied by a copy of
Sections 180.1301 to 180.1331 of the Wisconsin Business Corporation Law.
2.05. Fixing of Record Date. The Board of Directors may fix in advance
a date as the record date for one or more voting groups for any determination of
shareholders entitled to notice of a shareholders' meeting, to demand a special
meeting, to vote, or to take any other action, such date in any case to be not
more than seventy (70) days prior to the meeting or action requiring such
determination of shareholders, and may fix the record date for determining
shareholders entitled to a share dividend or distribution. If no record date is
fixed for the determination of shareholders entitled to demand a shareholder
meeting, to notice of or to vote at a meeting of shareholders, or to consent to
action without a meeting, (a) the close of business on the day before the
corporation receives the first written demand for a shareholder meeting, (b) the
close of business on the day before the first notice of the meeting is mailed or
otherwise delivered to shareholders, or (c) the close of business on the day
before the first written consent to shareholder action without a meeting is
received by the corporation, as the case may be, shall be the record date for
the determination of share holders. If no record date is fixed for the
determination of shareholders entitled to receive a share dividend or
distribution (other than a distribution involving a purchase, redemption or
other acquisition of the corporation's shares), the close of business on the day
on which the resolution of the Board of Directors is adopted declaring the
dividend or distribution shall be the record date. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any adjournment
thereof unless the Board of Directors fixes a new record date and except as
otherwise required by law. A new record date must be set if a meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
2.06. Shareholder List. The officer or agent having charge of the
stock transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete record of the shareholders entitled to notice of
such meeting, arranged by class or series of shares and showing the address of
and the number of shares held by each shareholder. The shareholder list shall be
available at the meeting and may be inspected by any shareholder or his or her
agent or attorney at any time during the meeting or any adjournment. Any
shareholder or his or her agent or attorney may inspect the shareholder list
beginning two (2) business days after the notice of the meeting is given and
continuing to the date of the meeting, at the corporation's principal office or
at a place identified in the meeting notice in the city where the meeting will
be held and, subject to Section 180.1602(2)(b) 3 to 5 of the Wisconsin Business
Corporation Law, may copy the list, during regular business hours and at his or
her expense, during the period that it is available for inspection hereunder.
The original stock transfer books and nominee certificates on file with the
corporation (if any) shall be prima facie evidence as to who are the
shareholders entitled to inspect the shareholder list or to vote at any meeting
of shareholders. Failure to comply with the requirements of this section shall
not affect the validity of any action taken at such meeting.
2.07. Quorum and Voting Requirements. Except as otherwise provided in
the Articles of Incorporation or in the Wisconsin Business Corporation Law, a
majority of the votes entitled to be cast by shares entitled to vote as a
separate voting group on a matter, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter at a meeting
of shareholders. If a quorum exists, action on a matter, other than the election
of directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action unless a
greater number of affirmative votes is required by the Wisconsin Business
Corporation Law or the Articles of Incorporation. If the Articles of
Incorporation or the Wisconsin Business Corporation Law provide for voting by
two (2) or more voting groups on a matter, action on that matter is taken only
when voted upon by each of those voting groups counted separately. Action may be
taken by one (1) voting group on a matter even though no action is taken by
another voting group entitled to vote on the matter. Once a share is represented
for any purpose at a meeting, other than for the purpose of objecting to holding
the meeting or transacting business at the meeting, it is considered present for
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purposes of determining whether a quorum exists for the remainder of the meeting
and for any adjournment of that meeting unless a new record date is or must be
set for that meeting.
2.08. Conduct of Meetings. The Chairperson of the Board, or if there
is none, or in his or her absence, the President, and in the President's
absence, a Vice President in the order provided under Section 4.06 of these
Bylaws, and in their absence, any person chosen by the shareholders present
shall call the meeting of the shareholders to order and shall act as chairperson
of the meeting, and the Secretary shall act as secretary of all meetings of the
shareholders, but, in the absence of the Secretary, the presiding officer may
appoint any other person to act as secretary of the meeting.
2.09. Proxies. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his or her duly authorized attorney-in-fact. All proxy appointment forms
shall be filed with the Secretary or other officer or agent of the corporation
authorized to tabulate votes before or at the time of the meeting. Unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest, a proxy appointment may be revoked at any time. The
presence of a shareholder who has filed a proxy appointment shall not of itself
constitute a revocation. No proxy appointment shall be valid after eleven months
from the date of its execu tion, unless otherwise expressly provided in the
appointment form. The Board of Directors shall have the power and authority to
make rules that are not inconsistent with the Wisconsin Business Corporation Law
as to the validity and sufficiency of proxy appointments.
2.10. Voting of Shares. Each outstanding share shall be entitled to
one (1) vote on each matter submitted to a vote at a meeting of shareholders,
except to the extent that the voting rights of the shares are enlarged, limited
or denied by the Articles of Incorporation or the Wisconsin Business Corporation
Law. Shares owned directly or indirectly by another corporation are not entitled
to vote if this corporation owns, directly or indirectly, sufficient shares to
elect a majority of the directors of such other corporation. However, the prior
sentence shall not limit the power of the corporation to vote any shares,
including its own shares, held by it in a fiduciary capacity. Redeemable shares
are not entitled to vote after notice of redemption is mailed to the holders and
a sum sufficient to redeem the shares has been deposited with a bank, trust
company, or other financial institution under an irrevocable obligation to pay
the holders the redemption price on surrender of the shares.
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers and Number. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, its Board of Directors. The
number of directors of the corporation shall be two (2). The number of directors
may be increased or decreased from time to time by amendment to this Section
adopted by the shareholders or the Board of Directors, but no decrease shall
have the effect of shortening the term of an incumbent director.
3.02. Election, Removal, Tenure and Qualifications. Unless action is
taken without a meeting under Section 7.01 of these Bylaws, directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a shareholders meeting at which a quorum is present; i.e., the
individuals with the largest number of votes in favor of their election are
elected as directors up to the maximum number of directors to be chosen in the
election. Votes against a candidate are not given legal effect and are not
counted as votes cast in an election of directors. In the event two (2) or more
persons tie for the last vacancy to be filled, a run-off vote shall be taken
from among the candidates receiving the tie vote. Each director shall hold
office until the next annual meeting of shareholders and until the director's
successor shall have been elected or there is a decrease in the number of
directors, or until his or her prior death, resignation or removal. If
cumulative voting for directors is not authorized by the Articles of
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Incorporation, any director or directors may be removed from office by the
shareholders if the number of votes cast to remove the director exceeds the
number cast not to remove him or her, taken at a meeting of shareholders called
for that purpose (unless action is taken without a meeting under Section 7.01 of
these Bylaws), provided that the meeting notice states that the purpose, or one
of the purposes, of the meeting is removal of the director. The removal may be
made with or without cause unless the Articles of Incorporation or these Bylaws
provide that directors may be removed only for cause. If a director is elected
by a voting group of shareholders, only the shareholders of that voting group
may participate in the vote to remove that director. A director may resign at
any time by delivering a written resignation to the Board of Directors, to the
Chairperson of the Board (if there is one), or to the corporation through the
Secretary or otherwise. Directors need not be residents of the State of
Wisconsin or shareholders of the corporation.
3.03. Regular Meetings. A regular meeting of the Board of Directors
shall be held, without other notice than this Bylaw, immediately after the
annual meeting of shareholders, and each adjourned session thereof. The place of
such regular meeting shall be the same as the place of the meeting of
shareholders which precedes it, or such other suitable place as may be announced
at such meeting of shareholders. The Board of Directors and any committee may
provide, by resolution, the time and place, either within or without the State
of Wisconsin, for the holding of additional regular meetings without other
notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairperson of the Board, if there is one,
the President or any two (2) directors. Special meetings of any committee may be
called by or at the request of the foregoing persons or the chairperson of the
committee. The persons calling any special meeting of the Board of Directors or
committee may fix any place, either within or without the State of Wisconsin, as
the place for holding any special meeting called by them, and if no other place
is fixed the place of meeting shall be the principal office of the corporation
in the State of Wisconsin.
3.05. Meetings By Telephone or Other Communication Technology. (a) Any
or all directors may participate in a regular or special meeting or in a
committee meeting of the Board of Directors by, or conduct the meeting through
the use of, telephone or any other means of communication by which either: (i)
all participating directors may simultaneously hear each other during the
meeting or (ii) all communication during the meeting is immediately transmitted
to each participating director, and each participating director is able to
immediately send messages to all other participating directors.
(b) If a meeting will be conducted through the use of any means
described in paragraph (a), all participating directors shall be informed that a
meeting is taking place at which official business may be transacted. A director
participating in a meeting by any means described in paragraph (a) is deemed to
be present in person at the meeting.
3.06. Notice of Meetings. Except as otherwise provided in the Articles
of Incorporation or the Wisconsin Business Corporation Law, notice of the date,
time and place of any special meeting of the Board of Directors and of any
special meeting of a committee of the Board shall be given orally or in writing
to each director or committee member at least 48 hours prior to the meeting,
except that notice by mail shall be given at least 72 hours prior to the
meeting. The notice need not describe the purpose of the meeting. Notice may be
communicated in person, by telephone, telegraph or facsimile, or by mail or
private carrier. Oral notice is effective when communicated. Written notice is
effective as follows: If delivered in person, when received; if given by mail,
when deposited, postage prepaid, in the United States mail addressed to the
director at his or her business or home address (or such other address as the
director may have designated in writing filed with the Secretary); if given by
facsimile, at the time transmitted to a facsimile number at any address
designated above; and if given by telegraph, when delivered to the telegraph
company.
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3.07. Quorum. Except as otherwise provided by the Wisconsin Business
Corporation Law, a majority of the number of directors as provided in Section
3.01 shall constitute a quorum of the Board of Directors. Except as otherwise
provided by the Wisconsin Business Corporation Law, a majority of the number of
directors appointed to serve on a committee shall constitute a quorum of the
committee.
3.08. Manner of Acting. Except as otherwise provided by the Wisconsin
Business Corporation Law or the Articles of Incorporation, the affirmative vote
of a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors or any committee thereof.
3.09. Conduct of Meetings. The Chairperson of the Board, or if there
is none, or in his or her absence, the President, and in the President's
absence, a Vice President in the order provided under Section 4.06 of these
Bylaws, and in their absence, any director chosen by the directors present,
shall call meetings of the Board of Directors to order and shall chair the
meeting. The Secretary of the corporation shall act as secretary of all meetings
of the Board of Directors, but in the absence of the Secretary, the presiding
officer may appoint any assistant secretary or any director or other person
present to act as secretary of the meeting.
3.10. Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by the shareholders or the Board of Directors. If the directors remaining
in office constitute fewer than a quorum of the Board, the directors may fill a
vacancy by the affirmative vote of a majority of all directors remaining in
office. If the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group may vote to fill
the vacancy if it is filled by the shareholders, and only the remaining
directors elected by that voting group may vote to fill the vacancy if it is
filled by the directors. A vacancy that will occur at a specific later date
(because of a resignation effective at a later date or otherwise) may be filled
before the vacancy occurs, but the new director may not take office until the
vacancy occurs.
3.11. Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may fix the compensation of directors.
3.12. Presumption of Assent. A director who is present and is
announced as present at a meeting of the Board of Directors or a committee
thereof at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless (i) the director objects at the
beginning of the meeting or promptly upon his or her arrival to holding the
meeting or transacting business at the meeting, or (ii) the director's dissent
or abstention from the action taken is entered in the minutes of the meeting, or
(iii) the director delivers his or her written dissent or abstention to the
presiding officer of the meeting before the adjournment thereof or to the
corporation immediately after the adjournment of the meeting, or (iv) the
director dissents or abstains from the action taken, minutes of the meeting are
prepared and fail to show the director's dissent or abstention from the action
taken, and the director delivers to the corporation a written notice of that
omission from the minutes promptly after receiving a copy of the minutes. Such
right to dissent or abstain shall not apply to a director who voted in favor of
such action.
3.13. Committees. Unless the Articles of Incorporation otherwise
provide, the Board of Directors, by resolution adopted by the affirmative vote
of a majority of all the directors then in office, may create one (1) or more
committees, each committee to consist of two (2) or more directors as members,
which to the extent provided in the resolution as initially adopted, and as
thereafter supplemented or amended by further resolution adopted by a like vote,
may exercise the authority of the Board of Directors, except that no committee
may: (a) authorize distributions; (b) approve or propose to shareholders action
that the Wisconsin Business Corporation Law requires be approved by
shareholders; (c) fill vacancies on the Board of Directors or any of its
committees, except that the Board of Directors may provide by resolution that
any vacancies on a committee shall be filled by the affirmative vote of a
majority of the remaining committee members; (d) amend the Articles of
Incorporation; (e) adopt, amend or repeal Bylaws; (f) approve a plan of merger
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not requiring shareholder approval; (g) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors or (h) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except within limits prescribed by
the Board of Directors. All members of the Board of Directors who are not
members of a given committee shall be alternate members of such committee and
may take the place of any absent member or members at any meeting of such
committee, upon request by the Chairperson of the Board, if there is one, the
President or upon request by the chairperson of such meeting. Each such
committee shall fix its own rules (consistent with the Wisconsin Business
Corporation Law, the Articles of Incorporation and these Bylaws) governing the
conduct of its activities and shall make such reports to the Board of Directors
of its activities as the Board of Directors may request. Unless otherwise
provided by the Board of Directors in creating a committee, a committee may
employ counsel, accountants and other consultants to assist it in the exercise
of authority. The creation of a committee, delegation of authority to a
committee or action by a committee does not relieve the Board of Directors or
any of its members of any responsibility imposed on the Board of Directors or
its members by law.
ARTICLE IV. OFFICERS
4.01. Appointment. The principal officers shall include a President
and Chief Executive Officer (the "President"), one or more Vice Presidents (the
number and designations to be determined by the Board of Directors), a Secretary
and such other officers, if any, as may be deemed necessary by the Board of
Directors, each of whom shall be appointed by the Board of Directors. Any two or
more offices may be held by the same person.
4.02. Resignation and Removal. An officer shall hold office until he
or she resigns, dies, is removed hereunder, or a different person is appointed
to the office. An officer may resign at any time by delivering an appropriate
written notice to the corporation. The resignation is effective when the notice
is delivered, unless the notice specifies a later effective date and the
corporation accepts the later effective date. Any officer may be removed by the
Board of Directors with or without cause and notwithstanding the contract
rights, if any, of the person removed. Except as provided in the preceding
sentence, the resignation or removal is subject to any remedies provided by any
contract between the officer and the corporation or otherwise provided by law.
Appointment shall not of itself create contract rights.
4.03. Vacancies. A vacancy in any office because of death,
resignation, removal or otherwise, shall be filled by the Board of Directors. If
a resignation is effective at a later date, the Board of Directors may fill the
vacancy before the effective date if the Board of Directors provides that the
successor may not take office until the effective date.
4.04. Chairperson of the Board. The Board of Directors may at its
discretion appoint a Chairperson of the Board. The Chairperson of the Board, if
there is one, shall preside at all meetings of the shareholders and Board of
Directors, and shall carry out such other duties as directed by the Board of
Directors.
4.05. President. The President shall be the principal executive
officer and, subject to the control and direction of the Board of Directors,
shall in general supervise and control all of the business and affairs of the
corporation. He or she shall, in the absence of the Chairperson of the Board (if
one is appointed), preside at all meetings of the shareholders and of the Board
of Directors. The President shall have authority, subject to such rules as may
be prescribed by the Board of Directors, to appoint such agents and employes of
the corporation as he or she shall deem necessary, to prescribe their powers,
duties and compensation, and to delegate authority to them. Such agents and
employes shall hold office at the discretion of the President. The President
shall have authority to sign, execute and acknowledge, on behalf of the
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corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases,
reports and all other documents or instruments necessary or proper to be
executed in the course of the corporation's regular business, or which shall be
authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or directed by the Board of Directors, the President may
authorize any Vice President or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in his or her place
and stead. In general he or she shall perform all duties incident to the office
of President and such other duties as may be prescribed by the Board of
Directors from time to time.
4.06. Vice Presidents. In the absence of the President, or in the
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to act personally, a Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may sign,
with the Secretary or Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties and have such authority as from
time to time may be delegated or assigned to him or her by the President or the
Board of Directors. The execution of any instrument of the corporation by any
Vice President shall be conclusive evidence, as to third parties, of the Vice
President's authority to act in the stead of the President.
4.07. Secretary. The Secretary shall: (a) keep (or cause to be kept)
regular minutes of all meetings of the shareholders, the Board of Directors and
any committees of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the provi
sions of these Bylaws or as required by law; (c) be custodian of the corporate
records and of the seal of the corporation, if any, and see that the seal of the
corporation, if any, is affixed to all documents which are authorized to be
executed on behalf of the corporation under its seal; (d) keep or arrange for
the keeping of a register of the post office address of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him or her by the President or by the Board
of Directors.
4.08. Treasurer and Chief Financial Officer. If the Board of Directors
appoints a Treasurer and Chief Financial Officer (the "Treasurer"), the
Treasurer shall: (a) have charge and custody of and be responsible for all funds
and securities of the corporation; (b) receive and give receipts for moneys due
and payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositories as shall be selected by the corporation; and (c) in general perform
all of the duties incident to the office of Treasurer and have such other duties
and exercise such other authority as from time to time may be delegated or
assigned to him or her by the President or by the Board of Directors.
4.09. Assistants and Acting Officers. The Board of Directors and the
President shall have the power to appoint any person to act as assistant to any
officer, or as agent for the corporation in the officer's stead, or to perform
the duties of such officer whenever for any reason it is impracticable for such
officer to act personally, and such assistant or acting officer or other agent
so appointed by the Board of Directors or President shall have the power to
perform all the duties of the office to which that person is so appointed to be
assistant, or as to which he or she is so appointed to act, except as such power
may be otherwise defined or restricted by the Board of Directors or the
President.
4.10. Salaries. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that such officer is also a director of the corporation.
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ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares. All shares of this corporation shall be
represented by certificates. Certificates representing shares of the corporation
shall be in such form, consistent with law, as shall be determined by the Board
of Directors. At a minimum, a share certificate shall state on its face the name
of the corporation and that it is organized under the laws of the State of
Wisconsin, the name of the person to whom issued, and the number and class of
shares and the designation of the series, if any, that the certificate
represents. If the corporation is authorized to issue different classes of
shares or different series within a class, the front or back of the certificate
must contain either (a) a summary of the designations, relative rights,
preferences and limitations applicable to each class, and the variations in the
rights, preferences and limitations determined for each series and the authority
of the Board of Directors to determine variations for future series, or (b) a
conspicuous statement that the corporation will furnish the shareholder the
information described in clause (a) on request, in writing and without charge.
Such certificates shall be signed, either manually or in facsimile, by the
President or a Vice President and by the Secretary or an Assistant Secretary.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as provided in Section
5.05.
5.02. Signature by Former Officers. If an officer or assistant
officer, who has signed or whose facsimile signature has been placed upon any
certificate for shares, has ceased to be such officer or assistant officer
before such certificate is issued, the certificate may be issued by the
corporation with the same effect as if that person were still an officer or
assistant officer at the date of its issue.
5.03. Transfer of Shares. Prior to due presentment of a certificate
for shares for registration of transfer, and unless the corporation has
established a procedure by which a beneficial owner of shares held by a nominee
is to be recognized by the corporation as the shareholder, the corporation may
treat the registered owner of such shares as the person exclusively entitled to
vote, to receive notifications and other wise to have and exercise all the
rights and power of an owner. The corporation may require reasonable assurance
that all transfer endorsements are genuine and effective and in compliance with
all regulations prescribed by or under the authority of the Board of Directors.
5.04. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction upon the transfer of such shares imposed by the corporation or
imposed by any agreement of which the corporation has written notice.
5.05. Lost, Destroyed or Stolen Certificates. Where the owner claims
that his or her certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) if required by the corporation, files with the
corporation a sufficient indemnity bond, and (c) satisfies such other reasonable
requirements as may be prescribed by or under the authority of the Board of
Directors.
5.06. Consideration for Shares. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time and determined
to be adequate by the Board of Directors, provided that any shares having a par
value shall not be issued for a consideration less than the par value thereof.
The consideration may consist of any tangible or intangible property or benefit
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to the corporation, including cash, promissory notes, services performed,
contracts for services to be performed, or other securities of the corporation.
When the corporation receives the consideration for which the Board of Directors
authorized the issuance of shares, such shares shall be deemed to be fully paid
and nonassessable by the corporation.
5.07. Stock Regulations. The Board of Directors shall have the power
and authority to make all such rules and regulations not inconsistent with the
statutes of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
corporation, including the appointment or designation of one or more stock
transfer agents and one or more registrars.
ARTICLE VI. WAIVER OF NOTICE
6.01. Shareholder Written Waiver. A shareholder may waive any notice
required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or these Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled to
the notice, shall contain the same information that would have been required in
the notice under the Wisconsin Business Corporation Law except that the time and
place of meeting need not be stated, and shall be delivered to the corporation
for inclusion in the corporate records.
6.02. Shareholder Waiver by Attendance. A shareholder's attendance at
a meeting, in person or by proxy, waives objection to both of the following:
(a) Lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting or promptly upon
arrival objects to holding the meeting or transacting business at the
meeting.
(b) Consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
6.03. Director Written Waiver. A director may waive any notice
required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or the Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing, signed by the director entitled to the
notice and retained by the corporation.
6.04. Director Waiver by Attendance. A director's attendance at or
participation in a meeting of the Board of Directors or any committee thereof
waives any required notice to him or her of the meeting unless the director at
the beginning of the meeting or promptly upon his or her arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
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ARTICLE VII. ACTION WITHOUT MEETINGS
7.01. Shareholder Action Without Meeting. Action required or permitted
by the Wisconsin Business Corporation Law to be taken at a shareholders' meeting
may be taken without a meeting (a) by all shareholders entitled to vote on the
action, or (b) if the Articles of Incorporation so provide (and except with
respect to an election of directors for which shareholders may vote
cumulatively) by shareholders who would be entitled to vote at a meeting shares
with voting power sufficient to cast not less than the minimum number (or, in
the case of voting by voting groups, the minimum numbers) of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote were present and voted. The action must be evidenced by one or
more written consents describing the action taken, signed by the shareholders
consenting thereto and delivered to the corporation for inclusion in its
corporate records. A consent hereunder has the effect of a meeting vote and may
be described as such in any document. The Wisconsin Business Corporation Law
requires that notice of the action be given to certain shareholders and
specifies the effective date thereof and the record date in respect thereto.
7.02. Director Action Without Meeting. Unless the Articles of
Incorporation provide otherwise, action required or permitted by the Wisconsin
Business Corporation Law to be taken at a Board of Directors meeting or
committee meeting may be taken without a meeting if the action is taken by all
members of the Board or committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director and
retained by the corporation. Action taken hereunder is effective when the last
director signs the consent, unless the consent specifies a different effective
date. A consent signed hereunder has the effect of a unanimous vote taken at a
meeting at which all directors or committee members were present, and may be
described as such in any document.
ARTICLE VIII. INDEMNIFICATION
8.01. Indemnification for Successful Defense. Within twenty (20) days
after receipt of a written request pursuant to Section 8.03, the corporation
shall indemnify a director or officer, to the extent he or she has been
successful on the merits or otherwise in the defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the director or officer was a
party because he or she is a director or officer of the corporation.
8.02. Other Indemnification.
(a) In cases not included under Section 8.01, the corporation
shall indemnify a director or officer against all liabilities and
expenses incurred by the director or officer in a proceeding to which
the director or officer was a party because he or she is a director or
officer of the corporation, unless liability was incurred because the
director or officer breached or failed to perform a duty he or she
owes to the corporation and the breach or failure to perform
constitutes any of the following:
(1) A willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the
director or officer has a material conflict of interest.
(2) A violation of criminal law, unless the director or
officer had reasonable cause to believe that his or her conduct
was lawful or no reasonable cause to believe that his or her
conduct was unlawful.
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(3) A transaction from which the director or officer
derived an improper personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required
under this Section shall be made pursuant to Section 8.05.
(c) The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or an
equivalent plea, does not, by itself, create a presumption that
indemnification of the director or officer is not required under this
Section.
8.03. Written Request. A director or officer who seeks indemnification
under Sections 8.01 or 8.02 shall make a written request to the corporation.
8.04. Nonduplication. The corporation shall not indemnify a director
or officer under Sections 8.01 or 8.02 to the extent the director or officer has
previously received indemnification or allowance of expenses from any person,
including the corporation, in connection with the same proceeding. However, the
director or officer has no duty to look to any other person for indemnification.
8.05. Determination of Right to Indemnification.
(a) Unless otherwise provided by the Articles of Incorporation
or by written agreement between the director or officer and the
corporation, the director or officer seeking indemnification under
Section 8.02 shall select one of the following means for determining
his or her right to indemnification:
(1) By a majority vote of a quorum of the Board of
Directors consisting of directors not at the time parties to the
same or related proceedings. If a quorum of disinterested
directors cannot be obtained, by majority vote of a committee
duly appointed by the Board of Directors and consisting solely of
two (2) or more directors who are not at the time parties to the
same or related proceedings. Directors who are parties to the
same or related proceedings may participate in the designation of
members of the committee.
(2) By independent legal counsel selected by a quorum of
the Board of Directors or its committee in the manner prescribed
in sub. (1) or, if unable to obtain such a quorum or committee,
by a majority vote of the full Board of Directors, including
directors who are parties to the same or related proceedings.
(3) By a panel of three (3) arbitrators consisting of one
arbitrator selected by those directors entitled under sub. (2) to
select independent legal counsel, one arbitrator selected by the
director or officer seeking indemnification and one arbitrator
selected by the two (2) arbitrators previously selected.
(4) By an affirmative vote of shares represented at a
meeting of shareholders at which a quorum of the voting group
entitled to vote thereon is present. Shares owned by, or voted
under the control of, persons who are at the time parties to the
same or related proceedings, whether as plaintiffs or defendants
or in any other capacity, may not be voted in making the
determination.
(5) By a court under Section 8.08.
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(6) By any other method provided for in any additional
right to indemnification permitted under Section 8.07.
(b) In any determination under (a), the burden of proof is on
the corporation to prove by clear and convincing evidence that
indemnification under Section 8.02 should not be allowed.
(c) A written determination as to a director's or officer's
indemnification under Section 8.02 shall be submitted to both the
corporation and the director or officer within 60 days of the
selection made under (a).
(d) If it is determined that indemnification is required under
Section 8.02, the corporation shall pay all liabilities and expenses
not prohibited by Section 8.04 within ten (10) days after receipt of
the written determination under (c). The corporation shall also pay
all expenses incurred by the director or officer in the determination
process under (a).
8.06. Advance of Expenses. Within ten (10) days after receipt of a
written request by a director or officer who is a party to a proceeding, the
corporation shall pay or reimburse his or her reasonable expenses as incurred if
the director or officer provides the corporation with all of the following:
(1) A written affirmation of his or her good faith belief
that he or she has not breached or failed to perform his or her
duties to the corporation.
(2) A written undertaking, executed personally or on his or
her behalf, to repay the allowance to the extent that it is
ultimately determined under Section 8.05 that indemnification
under Section 8.02 is not required and that indemnification is
not ordered by a court under Section 8.08(b)(2). The undertaking
under this subsection shall be an unlimited general obligation of
the director or officer and may be accepted without reference to
his or her ability to repay the allowance. The undertaking may be
secured or unsecured.
8.07. Nonexclusivity.
(a) Except as provided in (b), Sections 8.01, 8.02 and 8.06 do
not preclude any additional right to indemnification or allowance of
expenses that a director or officer may have under any of the
following:
(1) The Articles of Incorporation.
(2) A written agreement between the director or officer and
the corporation.
(3) A resolution of the Board of Directors.
(4) A resolution, after notice, adopted by a majority vote
of all of the corporation's voting shares then issued and
outstanding.
(b) Regardless of the existence of an additional right under
(a), the corporation shall not indemnify a director or officer, or
permit a director or officer to retain any allowance of expenses
unless it is determined by or on behalf of the corporation that the
director or officer did not breach or fail to perform a duty he or she
owes to the corporation which constitutes conduct under Section
8.02(a)(1), (2), (3) or (4). A director or officer who is a party to
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the same or related proceeding for which indemnification or an
allowance of expenses is sought may not participate in a determination
under this subsection.
(c) Sections 8.01 to 8.13 do not affect the corporation's power
to pay or reimburse expenses incurred by a director or officer in any
of the following circumstances.
(1) As a witness in a proceeding to which he or she is not
a party.
(2) As a plaintiff or petitioner in a proceeding because he
or she is or was an employe, agent, director or officer of the
corporation.
8.08. Court-Ordered Indemnification.
(a) Except as provided otherwise by written agreement between
the director or officer and the corporation, a director or officer who
is a party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent
jurisdiction. Application shall be made for an initial determination
by the court under Section 8.05(a)(5) or for review by the court of an
adverse determination under Section 8.05(a) (1), (2), (3), (4) or (6).
After receipt of an application, the court shall give any notice it
considers necessary.
(b) The court shall order indemnification if it determines any
of the following:
(1) That the director or officer is entitled to
indemnification under Sections 8.01 or 8.02.
(2) That the director or officer is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances, regardless of whether indemnification is required
under Section 8.02.
(c) If the court determines under (b) that the director or
officer is entitled to indemnification, the corporation shall pay the
director's or officer's expenses incurred to obtain the court-ordered
indemnification.
8.09. Indemnification and Allowance of Expenses of Employes and
Agents. The corporation shall indemnify an employe of the corporation who is not
a director or officer of the corporation, to the extent that he or she has been
successful on the merits or otherwise in defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the employe was a party
because he or she was an employe of the corporation. In addition, the
corporation may indemnify and allow reasonable expenses of an employe or agent
who is not a director or officer of the corporation to the extent provided by
the Articles of Incorporation or these Bylaws, by general or specific action of
the Board of Directors or by contract.
8.10. Insurance. The corporation may purchase and maintain insurance
on behalf of an individual who is an employe, agent, director or officer of the
corporation against liability asserted against or incurred by the individual in
his or her capacity as an employe, agent, director or officer, regardless of
whether the corporation is required or authorized to indemnify or allow expenses
to the individual against the same liability under Sections 8.01, 8.02, 8.06,
8.07 and 8.09.
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8.11. Securities Law Claims.
(a) Pursuant to the public policy of the State of Wisconsin,
the corporation shall provide indemnification and allowance of
expenses and may insure for any liability incurred in connection with
a proceeding involving securities regulation described under (b) to
the extent required or permitted under Sections 8.01 to 8.10.
(b) Sections 8.01 to 8.10 apply, to the extent applicable to any
other proceeding, to any proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities, securities brokers or dealers, or investment companies or
investment advisers.
8.12. Liberal Construction. In order for the corporation to obtain and
retain qualified directors, officers and employes, the foregoing provisions
shall be liberally administered in order to afford maximum indemnification of
directors, officers and, where Section 8.09 of these Bylaws applies, employes.
The indemnification above provided for shall be granted in all applicable cases
unless to do so would clearly contravene law, controlling precedent or public
policy.
8.13. Definitions Applicable to this Article. For purposes of this
Article:
(a) "Affiliate" shall include, without limitation, any
corporation, partnership, joint venture, employe benefit plan, trust
or other enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the corporation.
(b) "Corporation" means this corporation and any domestic or
foreign predecessor of this corporation where the predecessor
corporation's existence ceased upon the consummation of a merger or
other transaction.
(c) "Director or officer" means any of the following:
(1) An individual who is or was a director or officer of
this corporation.
(2) An individual who, while a director or officer of this
corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, member of any governing or
decision-making committee, employe or agent of another
corporation or foreign corporation, partnership, joint venture,
trust or other enterprise.
(3) An individual who, while a director or officer of this
corporation, is or was serving an employe benefit plan because
his or her duties to the corporation also impose duties on, or
otherwise involve services by, the person to the plan or to
participants in or beneficiaries of the plan.
(4) Unless the context requires otherwise, the estate or
personal representative of a director or officer.
For purposes of this Article, it shall be conclusively presumed that
any director or officer serving as a director, officer, partner,
trustee, member of any governing or decision-making committee, employe
or agent of an affiliate shall be so serving at the request of the
corporation.
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(d) "Expenses" include fees, costs, charges, disbursements,
attorney fees and other expenses incurred in connection with a
proceeding.
(e) "Liability" includes the obligation to pay a judgment,
settlement, penalty, assessment, forfeiture or fine, including an
excise tax assessed with respect to an employe benefit plan, and
reasonable expenses.
(f) "Party" includes an individual who was or is, or who is
threatened to be made, a named defendant or respondent in a
proceeding.
(g) "Proceeding" means any threatened, pending or completed
civil, criminal, administrative or investigative action, suit,
arbitration or other proceeding, whether formal or informal,
which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other
person.
ARTICLE IX. SEAL
The Board of Directors may provide a corporate seal which may be
circular in form and have inscribed thereon the name of the corporation and the
state of incorporation and the words "Corporate Seal."
ARTICLE X. AMENDMENTS
10.01. By Shareholders. These Bylaws may be amended or repealed and
new Bylaws may be adopted by the shareholders by the vote provided in Section
2.07 of these Bylaws or as specifically provided below. If authorized by the
Articles of Incorporation, the shareholders may adopt or amend a Bylaw that
fixes a greater or lower quorum requirement or a greater voting requirement for
shareholders or voting groups of shareholders than otherwise is provided in the
Wisconsin Business Corporation Law. The adoption or amendment of a Bylaw that
adds, changes or deletes a greater or lower quorum requirement or a greater
voting requirement for shareholders must meet the same quorum requirement and be
adopted by the same vote and voting groups required to take action under the
quorum and voting requirement then in effect.
10.02. By Directors. Except as the Articles of Incorporation may
otherwise provide, these Bylaws may also be amended or repealed and new Bylaws
may be adopted by the Board of Directors by the vote provided in Section 3.08,
but (a) no Bylaw adopted by the shareholders shall be amended, repealed or
readopted by the Board of Directors if the Bylaw so adopted so provides and (b)
a Bylaw adopted or amended by the shareholders that fixes a greater or lower
quorum requirement or a greater voting requirement for the Board of Directors
than otherwise is provided in the Wisconsin Business Corporation Law may not be
amended or repealed by the Board of Directors unless the Bylaw expressly
provides that it may be amended or repealed by a specified vote of the Board of
Directors. Action by the Board of Directors to adopt or amend a Bylaw that
changes the quorum or voting requirement for the Board of Directors must meet
the same quorum requirement and be adopted by the same vote required to take
action under the quorum and voting requirement then in effect, unless a
different voting requirement is specified as provided by the preceding sentence.
A Bylaw that fixes a greater or lower quorum requirement or a greater voting
requirement for shareholders or voting groups of shareholders than otherwise is
provided in the Wisconsin Business Corporation Law may not be adopted, amended
or repealed by the Board of Directors.
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10.03. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by a vote that would be
sufficient to amend the Bylaws so that the Bylaws would be consistent with such
action, shall be given the same effect as though the Bylaws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
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BEFORE THE
PUBLIC SERVICE COMMISSION OF WISCONSIN
Application of Wisconsin Energy Corporation for 9401-YO-100
Approval to Acquire the Stock of WICOR, Inc 9402-YO-101
FINAL DECISION
INTRODUCTION
BACKGROUND
On July 20, 1999, Wisconsin Energy Corporation (WEC or applicant)
filed an application under Wis. Stat. section 196.795(3) for authority to
acquire 100 percent of the outstanding common stock of WICOR, Inc. (WICOR). In
addition, WEC sought authorization to recover the utility portion of the
acquisition premium through retention of savings resulting from the acquisition.
The proposed transaction is structured as a merger of WICOR and a
special purpose subsidiary of WEC. It could involve cash plus stock or just
cash. If the transaction involves cash plus stock, WICOR will be merged into the
acquisition subsidiary and the name of the subsidiary will be changed to WICOR.
If the transaction involves only cash, the acquisition subsidiary will be merged
into WICOR. In either event, WICOR or its successor will become a wholly-owned
subsidiary of WEC and will, in turn, own Wisconsin Gas Company (WGC) and the
other WICOR subsidiaries. On October 27, 1999, both WEC and WICOR held separate
shareholder meetings, and the proposed merger was approved by each set of
shareholders.
A prehearing conference was held on September 8, 1999, to identify the
persons who would be actively participating as full parties, to identify and
designate the issues set for hearing, and to set procedural schedules for filing
testimony and discovery. On September 17, 1999, November 5, 1999, and November
<PAGE>
16, 1999, WEC and WICOR filed testimony in support of the proposed merger.
Public Service Commission (Commission) staff and intervenors filed testimony on
October 29, 1999, November 12, 1999, and November 16, 1999. Public technical
hearings were held before Administrative Law Judge Jeffry Patzke on November 17
and 18, 1999, at Madison, Wisconsin. A complete list of parties is attached as
Appendix A. Other appearances are listed in the Commission file. Initial briefs
were filed on December 13, 1999, and reply briefs were filed on December 23,
1999.
The application is GRANTED subject to conditions.
FINDINGS OF FACT
1. There has been no formal study of synergy savings and it is,
therefore, impossible to quantify such savings.
2. It is uncertain what gas cost savings can be expected.
3. Franchise territory expansion will not be affected by the merger.
4. To address gas-on-steam market power concerns, it is reasonable
for the Commission to require WGC to continue gas-on-steam competition for five
years via SD-1 steam displacement service.
5. Gas-on-electric competition is unlikely to be significantly
affected by the acquisition of WICOR, since under current industry structure
direct retail access is not imminent.
6. To address the market power concerns of Independent Power Producers
(IPPs), including wholesale merchant plants, it is reasonable to require WGC and
WEPCO, with respect to their gas operations, to offer IPPs, similarly situated
to any of WECs gas fired electric generating facilities, term, conditions and
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rates that are comparable to the terms, conditions and rates WGC and WEPCO gas
operations give to the affiliated electric generating facilities. It is
reasonable that IPPs be allowed to petition the Commission for redress when
there is a dispute over gas service terms, conditions, and rates.
7. It is reasonable that 60 percent, or an estimated $478 million,
of the total acquisition premium for WICOR be recorded on the books of WGC for
financial accounting purposes only, based on the final valuation of the acquired
assets.
8. It is reasonable to limit the utilities' right to seek a rate
increase for a five-year period (referred to in this order as the "Five-year
Rate Restriction Period") which shall be effective the later of January 1, 2001,
or upon the receipt of all state and federal approvals necessary for the
implementation of the acquisition. During this Five-year Rate Restriction
Period, a biennial rate review process will be available beginning with a 2002
test year. Items available for biennial rate review are limited to changes in
the revenue requirement due to governmental mandates, major gas lateral
projects, and abnormal levels of capital additions required to maintain or
improve reliable electric service. The Five-year Rate Restriction Period applies
to electric, gas and steam service rates in effect as of January 1, 2001, except
as set forth in the Order. WEPCO's rate change application currently before the
Commission in docket 663O-UR-111 shall proceed and any rate changes resulting
from that application for 2000 and 2001 shall be implemented.
9. It is not reasonable to provide recovery of transaction costs
associated with the acquisition from ratepayers.
10. It is reasonable that electric fuel rules remain applicable to
WEPCO.
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11. It is reasonable that gas cost recovery mechanisms for WEPCO and
WGC remain in effect.
12. It is reasonable that electric and steam rates of WEPCO not
change during the Five-Year Rate Restriction Period except as set forth in the
order.
13. It is reasonable that WEPCO and WGC have the opportunity to
petition the Commission for an amended order authorizing unified, but overall
revenue neutral, natural gas rates and rules, if the natural gas utilities
operations are combined prior to or during the Five-year Rate Restriction
Period.
14. It is reasonable that the natural gas rates of WEPCO not be
increased during the Five-Year Rate Restriction Period except as set forth in
the Order.
15. It is reasonable that the natural gas rates of WGC remain under
the Productivity based Alternative Ratemaking Mechanism (PARM) for its duration
and that they not be increased during the remainder of the Five-Year Rate
Restriction Period except as set forth in the Order.
16. It is reasonable that the water rates of WGC not be subject to
the Five-Year Rate Restriction Period set forth in this order and that WGC
continue to follow the water rate provisions set forth in the PARM letter order
dated December 16, 1998, which requires a water rate review filing in 2001.
17. It is reasonable that WEPCO and WGC initiate a full rate case
after the Five-year Rate Restriction Period set forth in Findings of Fact 8.
18. It is reasonable that the Commission review rates where there may
be significant over-earnings not related to synergy savings retention.
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19. It is reasonable to allow the applicant the opportunity to retain
synergy savings associated with the acquisition during the Five-Year Rate
Restriction Period set forth in Findings of Fact 8.
20. It is reasonable that after the Five-Year Rate Restriction Period,
the applicant is not precluded from applying for authority to retain additional
synergy savings. It is the responsibility of the applicant to develop a clear
mechanism to document the five-year synergy savings that occurred solely due to
the acquisition and any attendant integration. The burden is on the applicant to
produce such a clear mechanism in a format acceptable to the Commission for its
review and audit.
21. It is reasonable that the applicant demonstrate compliance with
the winter heating rules in effect pursuant to Wis. Admin. Code sections PSC
113.1323, 113.1324, 134.0623, and 134.0024 and address the needs of low-income
customers in a proactive and responsive manner. WGC's procedures for handling
low-income delinquent accounts remain in effect for WGC and it is reasonable
that WEPCO use the same procedures for its customers to the extent practicable.
22. It is reasonable for WEPCO and WGC to work with Commission staff
to develop a workable means to monitor electric, gas, and steam service quality
levels and trends resulting in a proposal to the Commission within six months of
the effective date of the acquisition.
23. It is reasonable that any unrecovered acquisition premium not be
considered a stranded cost in future proceedings before the Commission.
24. It is reasonable that WEPCO gas operations be required to follow
and comply with the emergency response time standards required of WGC.
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25. It is reasonable that WGCs program to reduce third party damage be
expanded to cover all gas territories of the combined entity within a reasonable
time after the acquisition.
26. It is reasonable to require WEC to file with the Commission a
formal integration and implementation plan or study related to the acquisition
within six months of the effective date of the acquisition.
27. The Commission acknowledges that the natural gas generic order in
docket 05-Gl-106 requires that gas utilities with the same corporate structure
must have like gas cost recovery mechanisms (GCRM) and therefore modification to
the current GCRM of WEPCO and/or WGC is necessary.
28. It reasonable to impose a best efforts operations and maintenance
standard for WEPCO and WGC.
CONCLUSIONS OF LAW
1. WEC is a holding company as defined in Wis. Stat. section
196.795.
2. WICOR is a holding company as defined in Wis. Stat. section
196.795.
3. WEPCO is a public utility as defined in Wis. Stat. section
196.01.
4. WGC is a public utility as defined in Wis. Stat. section 196.01.
5. The Commission is authorized under Wis. Stat. section 196.795 to
grant its consent and approval to the application of WEC to acquire 100 percent
of the outstanding common stock of WICOR.
6. The Commission is authorized under Wis. Stat, section 196.395 to
condition its order in this matter.
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7. The acquisition is in the best interests of utility consumers,
investors, and the public pursuant to Wis. Stat. section 196.795(3)
OPINION
ACQUISITION PREMIUM
In its application WEC proposed to pay $797 million in excess of book
value for WICOR. This amount is the acquisition premium. The acquisition premium
is the amount in excess of book value that WEC is willing to pay for WICOR. The
applicant proposed to allocate approximately 60 percent of the total acquisition
premium, or an estimated $479 million, to WGC. The 60 percent estimate was based
on studies performed by Chase Securities on behalf of WEC. The exact allocation
is not known with certainty because it depends on a final valuation of the
assets at the time the acquisition is completed.
The 60 percent time is a reasonable estimate of the acquisition
premium applicable to WGC based on what is known at this time. The exact dollar
amount recorded for accounting purposes should, however, reflect the figures
derived in the final valuation of the acquired assets. The determination of the
acquisition premium to be recorded on the books of WGC is an accounting
allocation. Recording the acquisition premium on the books of WGC has no bearing
on the amount authorized for rate recovery.
THE RATEMAKING TREATMENT OF THE ACQUISITION PREMIUM. WEC requested
recovery of the utility-related portion of the acquisition premium through
retention of the synergy savings that were expected to accrue from the
acquisition and subsequent integration of utility operations. WEC requested it
be permitted to retain synergy savings until the utility's portion of the
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acquisition premium is fully recovered. The Commission has generally rejected
dollar for dollar recovery of acquisition premiums. Recovery of any of the
premium has required a clear showing of substantial system benefits resulting
from the acquisition. See Preliminary Agreement of the Village of Footville,
Rock County, as an Electric Public Utility, to Sell its Electric Public Utility
Plant to Wisconsin Power and Light Company, dockets 6680-EB-103/2040-EA-100;
Northern States Power Company rate case docket 4220-UR-107.
The applicant was unable to substantiate sufficient system or economic
benefits resulting from the acquisition; therefore direct recovery of the
acquisition premium is not reasonable.
The Commission considered the appropriateness of alternative cost
recovery methods. A Five-year Rate Restriction Period, effective the later of
January 1, 2001, or when all necessary state and federal approvals are granted
is reasonable and provides the most effective and manageable opportunity for
cost recovery. The Five-year Rate Restriction Period covers electric rates, gas
rates, and steam service rates. Under this approach, rate reviews will be
limited to changes to the revenue requirement due to government mandates, major
lateral projects associated with approved natural gas pipeline construction
projects, and abnormal levels 1/ of capital additions required to maintain or
improve reliable electric service. Rate recovery for these items will be
considered in a biennial rate review process. The earliest a first biennial rate
review may occur is for the 2002 calendar year test period. The electric fuel
rules as well as GCRMs will continue in effect, not subject to the Five-year
Rate Restriction Period. WEPCO's rate change application currently before the
Commission in docket 6630-UR-111 shall proceed and any rate changes resulting
- ---------------
1 Levels are abnormal when major capital additions, required to maintain or
improve electric reliability, cause the total annual electric capital
additions to exceed normal historical levels. The amount above normal
historical levels would be considered for ratemaking purposes in a limited
rate review.
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from that application for 2000 and 2001 shall be implemented. The Commission
also retains its right to adjust rates if significant over-earnings not related
to synergy savings retention occur. A fall rate review will be conducted at the
end of the Five-year Rate Restriction Period.
Although direct rate recovery of the acquisition premium is not
authorized, the Five-year Rate Restriction Period provides the utilities with
the opportunity to recover the acquisition premium. After the Five-year Rate
Restriction Period, the applicant is not precluded from making its best case
showing of the appropriateness of more synergy savings retention. It will be the
responsibility of the utility to develop a clear mechanism to document the
five-year synergy savings that occurred solely due to the acquisition and any
attendant integration. It will be the responsibility of the applicant to prove
and show cause for any additional acquisition premium recovery via continued
synergy savings retention. At no time shall the applicant be able to recover the
transaction costs from the acquisition. Since WEC and WICOR entered into the
acquisition voluntarily, no unrecovered acquisition premium shall be considered
a stranded cost.
During the Five-year Rate Restriction Period, it is expected that
natural gas rates and rules may need to be modified should the applicant
integrate or merge the gas utilities during this period. In addition, market
forces, gas industry restructuring, and changes at the federal level may also
drive the need for continual rate and rule changes for natural gas utilities.
For example, the ten zones recently implemented in the last WEPC0 natural gas
rate case may need further refinement or changes during the Five-year Rate
Restriction Period.
To the extent these types of occurrences require the need for natural
gas rate and rule changes, the changes shall be made on a revenue neutral basis,
not increasing total revenues. The purpose of any rate change will be to
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accommodate the integration of the two natural gas utilities or to accommodate
restructuring and deregulation. Although rate structures may be changed, they
shall be revenue neutral and minimize the rate impact to any class of customers.
GAS COST SAVINGS. The Commission found in docket 05-GI-108 Phase I,
that increased company size does not tend to lead to lower gas costs. The
applicant provided no documentation, cost benefit analysis, or reliability
justification that demonstrated the proposed savings due to increased volume of
purchases should be given any weight in the determination of the appropriate
level of acquisition premium borne by ratepayers.
The applicant did, however, suggest that combining the companies'
diverse set of natural gas assets (e.g., storage and peaking facilities) may
allow the combined entity to dispatch those assets more efficiently than if they
were dispatched under separate companies. This improved ability to dispatch,
which was not considered in docket 05-GI-108 Phase I, might lower gas costs
slightly over the long run.
SYSTEM BENEFITS/NONECONOMIC BENEFITS. In testimony, the applicant
showed the potential for some non-economic benefits of the acquisition such as
improved customer and public safety. The applicant also testified that the two
gas systems could be integrated in several places resulting in expanded, more
reliable service. These enhancements contributed to a showing that the
acquisition is in the best interest of consumers and the public. However, there
was not an adequate showing that these benefits would be sufficient to allow for
the direct recovery of the acquisition premium.
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MARKET POWER
Market power issues in this matter involve the effects on consumers
from the loss of a potential competitor. Conventional antitrust analysis
examines whether the loss of even one competitor can affect prices to the
detriment of consumers. Areas of potential market power concern are
gas-on-steam competition, gas-on-electric competition, the provision of gas to
electric generating stations, and franchise territory expansion. Franchise
territory expansion should not be affected by the acquisition. The Commission
believes all issues related to market power can be successfully dealt with by
adoption of mitigation measures that are set forth as conditions in this Order.
GAS-ON-ELECTRIC COMPETITION. Gas-on-electric competition is unlikely
to be significantly affected by the acquisition under the current industry
structure. There are no tariff discounts available to induce customers to use
gas versus electricity. Choices over gas or electric appliances are left to the
marketplace. Furthermore, concerns over inter-fuel substitutions are misplaced
and premature. Whereas the acquisition does not create the anti-competitive
forces required to reduce the level of inter-fuel substitutions, retail electric
deregulation will have the potential to profoundly affect inter-fuel
competition. The Commission will address the potential decrease in such
competition when electric deregulation becomes imminent.
GAS-ON-STEAM COMPETITION. Requiring WGC to continue gas-on-steam
competition for the Five-Year Restriction Period will alleviate market power
concerns. WGC shall also notify all current and future SD-1 customers of the
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potential that the SD-1 tariff might face elimination after the Five-year Rate
Restriction Period.
GAS TO ELECTRIC GENERATING STATIONS. In Wisconsin, the wholesale
electric power market was deregulated by 1997 Wisconsin Act 204. It allows
non-Utility electricity producers to enter the market. The acquisition creates
the potential for vertical market power by giving the combined entity the
ability to thwart IPP entry by limiting available gas service. To remedy this
anti-competitive effect, WGC and WEPCO shall offer IPPs, similarly situated to
any of WECs gas fired electric generating facilities, terms, conditions and
rates that are comparable to the terms, conditions and rates WGC and WEPCO
provide to the affiliated electric generating facilities. Furthermore, IPPs
should be allowed to petition the Commission for redress if there is a dispute
over gas service terms, conditions and rates. This will prevent WEPCO and WGC
from showing preferential treatment to WEC's electric facilities.
CONDITIONS ON ACQUISITION FOR ENHANCED SERVICE QUALITY AND CONSUMER PROTECTION
The applicant claims that the acquisition would create a variety of
system benefits to existing gas distribution systems of WGC and WEPCO. The
conditions placed upon the acquisition will help the applicant realize these
benefits and ensure the acquisition produces an overall enhancement in service
quality and consumer protection.
SERVICE QUALITY IMPROVEMENTS. It is important that WGC and WEPCO
maintain and increase the level of electric, gas, and steam service quality
relative to those levels witnessed both prior to the acquisition of WICOR and to
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standard industry practice. WGC and WEPCO should cooperate with Commission staff
to develop a workable means to track these service quality levels and trends,
including but not limited to, tracking service quality indices. WGC and WEPCO
shall submit the proposed tracking methodology for Commission approval within
six months of the effective date of the acquisition.
EMERGENCY RESPONSE AND PREVENTION. Diligence in pipeline safety is a
top priority in Wisconsin. In the WGC PARM case, docket 6650-GR-112, the
Commission found that imposing certain operational performance measures would
assure that ratepayers would continue to receive safe and reliable service
during the period that the PARM was in effect. As a result, WGC became a model
for other gas utilities in the area of pipeline emergency response time and the
prevention of third party damage, which is the leading cause of damage to gas
facilities. WGC has reduced by 50 percent the number of leaks per 1000 locate
requests caused by third party damage since 1995. WGC is currently required to
respond to emergency gas leaks in an average of 21 minutes or less in its
southeast service territory and 31 minutes in its district operations areas.
The Commission finds it reasonable that these standards remain in
effect for WGC and finds it reasonable to require WEPCO's gas operations to meet
these same standards for comparable areas in its service territory. WEPCO, in
cooperation with Commission staff, shall develop a plan to implement this goal
and submit the implementation plan for Commission approval within six months of
the effective date of the acquisition.
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CODE OF CONDUCT AND AFFILIATED INTEREST ISSUES. Mergers and
acquisitions inevitably raise concerns over market power and fair competition.
The Commission, however, does not need to impose generated conditions on the
acquisition to prevent the possibility of anticompetitive behavior on the part
of the companies within the WEC holding company system. The Commission is
authorized to ensure that public utilities compete fairly in Wisconsin through
the existing framework of the Standards of Conduct in Docket 05-GI-108 Phase II,
and Wis. Stat. sections 196.52 and 196.795 that provide mechanisms to deal with
affiliated interest and holding company concerns. In addition to these
safeguards, the interests of IPPs and users of gas and steam are specifically
addressed in the Market Power section of this decision.
BEST PRACTICES. In any acquisition, there is a risk that the acquirer,
driven by shareholder interest to recover the acquisition premium will attempt
to maximize profits at the expense of maintenance and repair of essential
equipment and facilities. This could result in risks to ratepayers in the form
of decreased reliability and long term increased cost for accelerated
replacement of equipment. This risk is reduced by requiring WGC and WEPCO to
maintain best-efforts operations and maintenance (O&M) practices for their
electric, steam and gas operations and facilities, enforceable through punitive
Commission action.
WINTER HEATING RULES AND DISCONNECTION PROCEDURES. The Commission
recognizes the concern this acquisition raises for low-income customers. The
applicant must demonstrate adherence to the winter heating rules in effect and
deal with the needs of low-income customers in a proactive and responsive
manner. It is important that WGC's procedures for handling low-income delinquent
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accounts remain in effect and that WEPCO use the same procedures for its
customers to the extent practicable.
GAS SYSTEM INTEGRATION. The applicant testified that at some point
after the acquisition takes place WEC will integrate the gas distribution
systems of WGC and WEPCO. This integration will involve the physical connection
of these systems at a variety of locations as well as the combined use of other
system resources, such as equipment and personnel. Integration is not an issue
presented for decision in this docket. Given the lack of certainty as to the
timing and nature of integration, WEC shall file an integration or
implementation plan or study with the Commission within six months of the
effective date of the acquisition.
THE EFFECT OF THE ACQUISITION ON UTILITY CONSUMERS, INVESTORS AND THE PUBLIC
Wis. Stat. section 196.795(3) requires that Commission approval of the
proposed acquisition can only occur when the transaction is found to be in the
best interests of 1) utility consumers, 2) the investors, and 3) the public.
UTILITY CONSUMERS. The acquisition is in the best interests of the
utility consumers because ratepayers could realize rate reductions in the long
term, along with potential increases in reliability and gas cost savings. The
Order imposes a Five-Year Rate Restriction Period, as previously described. This
period ensures that during the initial five years after the acquisition,
ratepayers will not pay more for utility service than if the acquisition had
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never occurred. After the Five-Year Rate Restriction Period, any synergies
created by operational or structural integration of utility operations will be
passed on to ratepayers.
The acquisition as conditioned by the order, therefore, protects
ratepayers from paying unreasonable rates while giving WEPCO and WGC the
economic incentive to quickly realize synergies that will ultimately provide
ratepayer benefits. The Order's specific conditions regarding such topics as
compliance with winter heating rules, the use of best efforts O&M practices, and
the implementation of a service quality tracking mechanism, prevents foreseeable
harm to ratepayers.
INVESTORS. In determining whether the acquisition is in the best
interests of the investors, the Commission acknowledges the shareholder votes of
both WEC and WICOR approving the acquisition. The combined entity will allow the
shareholders to become part of a diversified Wisconsin based entity. Bondholders
and preferred stockholders will be protected by long-term benefits as the new
entity becomes more diversified.
PUBLIC. The acquisition is in the public interest of the local
communities the combined entity serves and the entire state. The acquisition
preserves entities that have had long histories of civic and charitable
involvement that could be lost by an out-of-state acquisition. The combined
entity will continue to partner with communities to develop and support
educational and economic development programs that impact Wisconsin in a
positive manner. In addition, the applicant has made a positive commitment to
labor with an assurance of no layoffs. Wisconsin will continue to receive the
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economic development benefits of a company that resides in and understands the
community it serves.
ORDER
1. WGC shall continue gas-on-steam competition for the Five-year
Rate Restriction Period via SD-1 steam displacement service. WGC shall notify
current and future SD-1 customers of the potential that the SD-1 tariff might be
eliminated at the conclusion of the Five-year Rate Restriction Period.
2. WGC and WEPCO shall offer IPPs, including wholesale merchant
plants, similarly situated to any of WEC's gas fired electric generating
facilities, terms, conditions and rates that are comparable to the terms,
conditions and rates WGC and WEPCO provide to the affiliated electric generating
facilities. WGC and WEPCO shall notify IPPs of their right to petition the
Commission for redress when there is a dispute over gas service terms,
conditions and rates.
3. Based on the final valuation of the acquired assets, 60 percent
of the total acquisition premium for WICOR, which is estimated to be $478
million, shall be recorded on the books of WGC for financial accounting purposes
only.
4. The Five-year Rate Restriction Period applies to the utilities'
electric rates, gas rates, and steam service rates in effect as of January 1,
2001, except as set forth in Order Point 11. During the Five-year Rate
Restriction Period a biennial rate review process will be available beginning
with a 2002 test year. Items available for biennial rate review are limited to
changes in the revenue requirement due to governmental mandates, major gas
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lateral projects, and abnormal levels of capital additions required to maintain
or improve reliable electric Service. WEPCO's rate change application currently
before the Commission in docket 6630-UR-111 shall proceed and any rate changes
resulting from that application for 2000 and 2001 shall be implemented. The
Commission retains its right to adjust rates if significant over-earnings not
related to synergy savings retention occur. A full rate review will be conducted
at the end of the Five-Year Rate Restriction Period.
5. WGC and WEPCO may not recover any transaction costs associated
with the acquisition from ratepayers.
6. Electric fuel rules shall continue in effect.
7. GCRMs for WEPCO and WGC shall continue in effect.
8. WEPCO may not apply for an increase in its electric and steam
rates during the Five-year Rate Restriction Period except as set forth in Order
Points 4 and 6.
9. WEPCO and WGC may petition the Commission for an amended order
authorizing unified, but overall revenue neutral natural gas rates and rules
during the Five-year Rate Restriction Period, if the utilities' natural gas
operations are combined prior to or during the five-year period.
10. Natural gas rates of WEPCO shall remain revenue neutral during
the Five-year Rate Restriction Period except as set forth in Order Points 4 and
9.
11. Natural gas rates of WGC shall remain under the
Productivity-based Alternative Ratemaking Mechanism (PARM) for its duration and
remain revenue neutral during the remainder of the Five-year Rate Restriction
Period except as set forth in Order Points 4 and 9.
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12. Water rates of WGC shall not be subject to the Five-Year Rate
Restriction Period and WGC shall continue to follow the water rate provisions
set forth in the PARM letter order dated December 16, 1998, which requires a
water rate review filing in 200 1.
13. WGC's procedures for disconnecting late payment customers and
cold weather disconnections shall remain in effect for WGC and be adopted by
WEPCO for its customers to the extent practicable.
14. WEPCO and WGC shall work with Commission staff to develop a
workable method to monitor electric, gas, and steam service quality levels and
trends. The utilities shall propose a method to the Commission within six months
of the effective date of the acquisition.
15. Any unrecovered acquisition premium shall not be considered a
stranded cost in future proceedings before the Commission.
16. WEPCO shall, in cooperation with Commission staff, develop a plan
to meet the natural gas emergency response time standards currently imposed on
WGC, and submit the implementation plan within six months of the effective date
of the acquisition.
17. WGC's program to reduce third party damage shall be expanded to
cover all gas territories of WEC within a reasonable time after acquisition.
18. WEC shall file with the Commission a formal integration and
implementation plan or study related to the acquisition within six months of the
effective date of the acquisition.
19. Either WGC or WEPCO, or both, shall modify their GCRMs for
consistency with the natural gas generic order in docket 05-GI-106.
20. WGC and WEPCO shall follow best efforts operations and
maintenance practices.
21. This order shall be effective on the day following the day of
mailing.
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22. Jurisdiction is retained.
Dated at Madison, Wisconsin, March 14, 2000
--------------
By the Commission:
/s/ Lynda L. Door
- -------------------------------
Lynda L. Door
Secretary to the Commission
LLD:LMS;ash;g;\order\pending\9401-YO-100 9402-YO-101 Final.doc
See attached Notice of Appeal Rights
20
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Notice of Appeal Rights
Notice is hereby given that a person aggrieved by the foregoing
decision has the right to file a petition for judicial review as
provided in Wis. Stat. section 227.53. The petition must be filed
within 30 days after the date of mailing of this decision. That date
is shown on the first page. If there is no date on the first page, the
date of mailing is shown immediately above the signature line. The
Public Service Commis sion of Wisconsin must be named as respondent in
the petition for judicial review.
Notice is further given that, if the foregoing decision is an order
following a proceeding which is a contested case as defined in Wis.
Stat. section 227.01(3), a person aggrieved by the order has the
further right to file one petition for rehearing as provided in Wis.
Stat. section 227.49. The petition must be filed within 20 days of the
date of mailing of this decision.
If this decision is an order after rehearing, a person aggrieved who
wishes to appeal must seek judicial review rather than rehearing. A
second petition for rehearing is not an option.
This general notice is for the purpose of ensuring compliance with
Wis. Stat. section 227.48(2), and does not constitute a conclusion or
admis sion that any particular party or person is necessarily
aggrieved or that any particular decision or order is final or
judicially reviewable.
Revised 9/28/98
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APPENDIX A
(CONTESTED)
In order to comply with Wis. Stat. section 227.47, the following
parties who appeared before the agency are considered parties for purposes of
review under Wis. Stat. section 227.53.
Public Service Commission of Wisconsin
(Not a parry but must be served)
610 N. Whitney Way
P.O. Box 7854
Madison, WI 53707-7854
WISCONSIN ENERGY CORPORATION
by
Mr. Larry J. Martin, Attorney
Quarles and Brady
411 East Wisconsin Avenue, Suite 2550
Milwaukee, WI 53202-4497
WICOR INC.
by
Mr. Charles Cummings, Attorney
626 Fast Wisconsin Avenue
P.O. Box 544
Milwaukee, WI 53201-0544
WISCONSIN END-USER GAS AND ELECTRIC ASSOCIATION (WEUGEA)
by
Ms. Darcy Fabrizius
P.O. Box 2226
Waukesha, WI 53187-2226
WISCONSIN PUBLIC SERVICE CORPORATION
By
Mr. Bradley D. Jackson, Attorney
Foley & Lardner
150 East Gilman Street
P.O. Box 1497
Madison, WI 53701-1497
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SCBIFFRIN & BARROWAY, LLP (WICOR, INC. Shareholders)
by
Ms. Joan L. Romett
Three Bala Plaza East, Suite 400
Bala Cynwyd, PA 19004
INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, LOCAL 2150
by
W. Forrest Ceel
Local 2150 IBEW
N8 W22520 Johnson Drive, Unit H
Waukesha, W1 53186
UNITED STEELWORKERS OF AMERICA, LOCAL 12005
by
Mr. Phil Gozy
4114 Wood Road
Racine, WI 53403
WISCONSIN PUBLIC POWER INC. (WPPI)
by
Mr. Michael Stuart, Attorney
1425 Corporate Center Drive
Sun Prairie, WI 53590-9109
WISCONSIN PAPER COUNCIL
by
W. Earl Gustafson
P.O. Box 718
Neenah, WI 54957-0718
ANR PIPELINE COMPANY
by
Mr. Thomas P. Pyper, Attorney
Ms. Theresa M. Hottenroth, Attorney
Whyte, Hirschboeck and Dudek, S.C.
One East Main Street, Suite 300
Madison, WI 53703-3300
23
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WISCONSIN INDUSTRIAL ENERGY GROUP (WIEG)
by
Mr. Richard L. Olson, Attorney
Ms. Linda M. Clifford, Attorney
LaFolleue & Sinykin, LLP
1 East Main Street, Suite 500
Madison, WI 53703
WISCONSIN FEDERATION OF COOPERATIVES
by
Mr. Warren J. Day, Attorney
30 West Mifflin Street, Suite 401
Madison, WI 53703
CITIZENS UTILITY BOARD
by
Ms. Mary Wright
Cullen, Weston, Pines & Bach
122 West Washington Avenue, Suite 900
Madison, WI 53703
Mr. Dennis Dums
Research Director
Citizens' Utility Board
16 North Carroll Street, Suite 300
Madison, WI 53703
ALLLANT ENERGY-WISCONSIN POWER & LIGHT COMPANY
by
Mr. Ritchie J. Sturgeon, Attorney
222 West Washington Avenue
P.O. Box 192
Madison, WI 53701-0192
WISCONSIN DEPARTMENT OF JUSTICE
by
Mr. Edwin J. Hughes
Assistant Attorney General
123 West Washington Avenue
P.O. Box 7857
Madison, WI 53707-7957
24
EXHIBIT F-1
[Q&B Letterhead]
March 21, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Application of Wisconsin Energy Corporation
Form U-1 Under the Public Utility Holding Company Act of 1935
(File No. 70-09571)
Ladies and Gentlemen:
We are furnishing this opinion to the Securities and Exchange
Commission (the "Commission") at the request of Wisconsin Energy Corporation, a
Wisconsin corporation ("WEC"), in connection with WEC's Application/Declaration
on Form U-1 (File No. 70-09571) (the "Application") under the Public Utility
Holding Company Act of 1935, as amended (the "Act"). The Application requests
that the Commission authorize WEC's acquisition of all of the issued and
outstanding stock of WICOR, Inc., a Wisconsin corporation ("WICOR") (the
"Transaction"), and also requests an order from the Commission that, following
the consummation of the Transaction, WEC, and each of its subsidiary companies,
will be exempt from all provisions of the Act, other than Section 9(a)(2),
pursuant to Section 3(a)(1) of the Act. WEC and WICOR currently are both exempt
holding companies pursuant to Section 3(a)(1) of the Act.
The Transaction will be consummated in accordance with the terms of an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of June 27,
1999, as amended as of September 9, 1999, by and among WEC, WICOR and CEW
Acquisition, Inc. ("CEW Acquisition"), a Wisconsin corporation and wholly owned
subsidiary of WEC formed for the purpose of facilitating the Transaction. The
Merger Agreement provides for the acquisition of WICOR by WEC through a merger
of CEW Acquisition with WICOR (the "Merger") in which the outstanding shares of
WICOR common stock, par value $1.00 per share ("WICOR Common Stock"), will be
converted into the right to receive cash, shares of WEC common stock, par value
$.01 per share ("WEC Common Stock"), or a combination of cash and shares of WEC
Common Stock (the "Merger Consideration"), upon the terms and subject to the
conditions of the Merger Agreement. Under the Merger Agreement, WEC will select
a percentage of the Merger Consideration to be paid in WEC Common Stock, which
<PAGE>
Securities and Exchange Commission
March 21, 2000
Page 2
may not be less than 40% or more than 60%; the balance will be paid in cash.
However, WEC may elect to pay the Merger Consideration in 100% cash if the
average closing price of WEC Common Stock during a valuation period shortly
before the Merger closes, when the exchange ratio will be determined, is less
than $22.00 per share.
Under the Merger Agreement, if the Merger Consideration is paid in
100% cash, then CEW Acquisition will be merged with and into WICOR, which will
be the surviving corporation. If any of the Merger Consideration is paid in WEC
Common Stock, then WICOR will be merged with and into CEW Acquisition, which
will be the surviving corporation. The corporation which is the surviving
corporation in the Merger is referred to in the Merger Agreement and herein as
the "Surviving Corporation."
In connection with this opinion, we have examined such corporate
records, certificates and other documents, and such questions of fact and
matters of law, as we have deemed necessary for purposes of this opinion.
The opinions expressed below with respect to the Transaction are
subject to and rely upon the following assumptions and conditions:
(a) The Transaction shall have been duly authorized and approved, to
the extent required by the governing corporate documents and
applicable state laws, by the boards of directors and
shareholders of WEC and WICOR.
(b) All required approvals, authorizations, consents, certificates,
rulings and orders of, and all filings and registrations with,
all applicable federal and state commissions and regulatory
authorities with respect to the Transaction shall have been
obtained or made, as the case may be (including the approval and
authorization of the Commission under the Act), and the
Transaction shall have been accomplished in accordance with all
such approvals, authorizations, consents, certificates, orders,
filings and registrations.
(c) The Registration Statement of WEC on Form S-4 (Registration No.
333-86827), Filed with the Commission on September 9, 1999 and
declared effective by the Commission on September 10, 1999, shall
remain effective pursuant to the Securities Act of 1933, as
amended, and no stop order shall have been entered with respect
thereto.
<PAGE>
Securities and Exchange Commission
March 21, 2000
Page 3
(d) All corporate formalities required by state law for the
consummation of the Transaction shall have been taken, and the
Transaction shall have become effective in accordance with the
laws of the State of Wisconsin.
(e) The parties shall have obtained all consents, waivers and
releases, if any, required for the Transaction under all
applicable governing corporate documents, contracts, agreements,
debt instruments, indentures, franchises, licenses and permits.
(f) The representations and warranties of WICOR concerning the
corporate organization, existence and capitalization of WICOR set
forth in the Merger Agreement are true and correct in all
respects.
Based upon the foregoing, and subject to the assumptions and
conditions set forth herein, it is our opinion that:
1. Each of WEC, WICOR and CEW Acquisition is a corporation duly
incorporated and validly existing under the laws of the State of
Wisconsin.
2. Upon the Transaction being consummated in accordance with the
Merger Agreement and as contemplated by the Application:
(a) All State laws applicable to the consummation of the
Transaction will have been complied with;
(b) (i) When so issued, any shares of WEC Common Stock issued
pursuant to and as contemplated by the Merger Agreement
will be validly issued, fully paid and nonassessable
(except as otherwise provided in Section 180.0622(2)(b)
of the Wisconsin Business Corporation Law, as
judicially interpreted), and the holders thereof will
be entitled to the rights and privileges appertaining
thereto as set forth in the Restated Articles of
Incorporation of WEC;
(ii) The shares of common stock of the Surviving Corporation
outstanding immediately after the Effective Time of
Merger, as provided in Section 2.5 of the Merger
Agreement, will be validly issued, fully paid and
nonassessable (except as otherwise provided in Section
180.0622(2)(b) of the Wisconsin Business Corporation
Law, as judicially interpreted), and WEC, as the sole
holder thereof, will be entitled to the rights and
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Securities and Exchange Commission
March 21, 2000
Page 4
privileges appertaining thereto as set forth in the
Restated Articles of Incorporation of the Surviving
Corporation, which shall be in the form provided in
Section 2.3(a) of the Merger Agreement;
(c) WEC will legally acquire all of the outstanding shares of
WICOR Common Stock; and
(d) The consummation of the Transaction will not violate the
legal rights of the holders of any securities issued by WEC
or any associate company thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Application.
Larry J. Martin, a partner in our firm, is General Counsel of WEC.
Very truly yours,
/s/ Quarles & Brady LLP
----------------------------------------
QUARLES & BRADY LLP
